27 Questions
What types of investment companies are classified by the Investment Company Act of 1940?
Unit investment trusts and managed investment companies
Who enforces and regulates the legislation in the Investment Company Act of 1940?
Securities and Exchange Commission (SEC)
What is the main purpose of the Investment Company Act of 1940?
To provide investors with information about their investment objectives, investment policies, and financial condition
What do investment companies do with funds collected from multiple investors?
Invest in underlying assets
What is the purpose of 12b-1 charges in investment funds?
To cover advertising, promotional literature, and broker commissions
What is the SEC requirement related to fees in investment fund prospectuses?
To provide a consolidated expense table listing all fees
What is the tax status granted to mutual funds?
Pass-through status
What is the gross return for a fund with a NAV of $10, 5% annual expenses, and 14% per share earnings for 2 years?
$1.09
How do front-end load, back-end load, and annual expense ratio affect the gross return for an investor in a fund?
They reduce the gross return
In a comparison between mutual funds with CDs, what return must a fund with a 3% front-end load and a 0.6% annual expense ratio earn to be a better investment than a CD?
6.4%
What are some advantages of mutual funds?
Record keeping, diversification, professional management, and sometimes lower transaction costs
What is a characteristic of ETFs?
They can be bought and sold anytime like stocks
What is a key difference between mutual funds and hedge funds?
Hedge funds use more speculative policies than mutual funds
What type of securities do mutual funds and hedge funds typically invest in?
Mutual funds buy publicly traded securities, while hedge funds use leverage and short-sales
What is recommended for reviewing in the lecture concepts and terminology related to investment funds?
Managed investment companies, unit investment trusts, loads, ETFs, hedge funds, and asset classes in mutual funds and ETFs
What is the median number of mutual funds owned by individuals in the US?
3
Which type of funds are sold at net asset value (NAV) to the sponsor and are bought and sold at the end of the day when NAV is calculated?
Open-end mutual funds
What is the typical range of front-end load fees paid when purchasing mutual fund shares?
5-6%
What has happened to trillions of dollars of cumulative cash flows over the last 10 years?
They have been withdrawn from actively managed equity mutual funds and placed in index-based equity ETFs or mutual funds
What is the typical range of back-end load fees incurred when selling mutual fund shares?
4-6%
Where have the majority of mutual and ETF investments in the US been?
Domestic equity, bonds, international equity, and money market securities
What has happened to the concentration of mutual fund and ETF assets managed by the largest fund complexes over time?
It has increased
What is the typical range of operating expenses for mutual funds as a percentage of assets under management?
0.2% - 2%
What has been the trend in the share of assets managed by the five largest firms from 2005 to 2022?
Increased to 55%
How many US-registered investment companies were offered by US financial services companies at year-end 2022?
16,000
What percentage of households in the US are invested in mutual funds, mostly for retirement purposes?
54.7%
How many ETFs were there in the US at the end of 2023?
2,989
Study Notes
US Investment Company Institute (ICI) Factbook 2023 Highlights
- At the end of 2023, US-registered investment companies held $28.9 trillion in total net assets, with the majority being held by mutual funds and ETFs.
- 71.7 million households, representing 120.5 million individuals in the US, own funds, with 54.7% of households invested in these funds, mostly for retirement purposes.
- The median number of mutual funds owned by individuals is 3, and in the US alone, there were over 8,763 mutual funds and 2,989 ETFs.
- The majority of mutual and ETF investments in the US were in domestic equity, bonds, international equity, and money market securities.
- Trillions of dollars of cumulative cash flows have been withdrawn from actively managed equity mutual funds and placed in index-based equity ETFs or mutual funds over the last 10 years.
- The number of investment companies offered by US financial services companies at year-end 2022 was 16,159, with the majority of investment company assets in equity funds.
- The concentration of mutual fund and ETF assets managed by the largest fund complexes has increased over time, with the share of assets managed by the five largest firms rising from 35% in 2005 to 55% in 2022.
- Open-end mutual funds are sold at net asset value (NAV) to the sponsor and are bought and sold at the end of the day when NAV is calculated, while closed-end funds are sold at a premium or discount to NAV to other investors.
- Common types of mutual funds include money market, equity, specialized sector, bond, distressed firm, value or growth firms, and international indexed funds.
- Front-end load fees, which are a commission or sales charge paid when purchasing mutual fund shares, typically range up to 6%, affecting the price paid by investors.
- Back-end load fees, incurred when selling mutual fund shares, typically range from 4-6% and may decrease with time, affecting the investor's payoff.
- Operating expenses for mutual funds, used to pay for administrative expenses and advisory fees, typically range between 0.2% and 2% of assets under management.
Test your knowledge of the US Investment Company Institute (ICI) Factbook 2023 highlights with this quiz. Explore key insights such as total net assets held by investment companies, household ownership of funds, types of mutual funds and ETFs, cash flow trends, fees, and more.
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