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Questions and Answers
Equity trusts primarily invest in mortgage and construction loans.
Equity trusts primarily invest in mortgage and construction loans.
False
Hedge funds are subject to many SEC regulations like mutual funds.
Hedge funds are subject to many SEC regulations like mutual funds.
False
Mutual funds are typically externally managed and do not have their own employees.
Mutual funds are typically externally managed and do not have their own employees.
True
Hedge funds usually require investors to agree to initial 'lock-ups' for several years.
Hedge funds usually require investors to agree to initial 'lock-ups' for several years.
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Mortgage trusts primarily invest in real estate directly.
Mortgage trusts primarily invest in real estate directly.
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Net Asset Value (NAV) is calculated by dividing the market value of a fund’s assets minus its liabilities by the total number of shares outstanding.
Net Asset Value (NAV) is calculated by dividing the market value of a fund’s assets minus its liabilities by the total number of shares outstanding.
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Managed investment companies are also referred to as unmanaged companies.
Managed investment companies are also referred to as unmanaged companies.
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Mutual funds only invest in government-issued securities.
Mutual funds only invest in government-issued securities.
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Unit investment trusts have a fixed portfolio for their entire duration and involve little active management.
Unit investment trusts have a fixed portfolio for their entire duration and involve little active management.
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Investment companies allow small investors to benefit from large-scale investing.
Investment companies allow small investors to benefit from large-scale investing.
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The net asset value (NAV) is calculated by subtracting liabilities from the total market value of a fund’s assets.
The net asset value (NAV) is calculated by subtracting liabilities from the total market value of a fund’s assets.
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Managed companies that sell and buy securities form a type of trust known as open-end companies.
Managed companies that sell and buy securities form a type of trust known as open-end companies.
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The absence of active management in unit investment trusts typically leads to higher management fees compared to managed funds.
The absence of active management in unit investment trusts typically leads to higher management fees compared to managed funds.
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Investment companies can only operate on weekends.
Investment companies can only operate on weekends.
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When calculating NAV, a fund's income and earnings are included as part of its market value.
When calculating NAV, a fund's income and earnings are included as part of its market value.
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Professional management in investment companies aims to achieve superior investment results for investors.
Professional management in investment companies aims to achieve superior investment results for investors.
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Lower transaction costs in investment companies result from trading in small amounts of securities.
Lower transaction costs in investment companies result from trading in small amounts of securities.
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Closed-end companies are characterized by their ability to issue new shares continuously to investors.
Closed-end companies are characterized by their ability to issue new shares continuously to investors.
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A unit investment trust can invest in various types of assets, but the portfolio composition remains uniform throughout its duration.
A unit investment trust can invest in various types of assets, but the portfolio composition remains uniform throughout its duration.
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Investors' ownership in mutual funds is unrelated to the number of shares they purchased.
Investors' ownership in mutual funds is unrelated to the number of shares they purchased.
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Mutual funds can only invest for capital growth and not for income generation.
Mutual funds can only invest for capital growth and not for income generation.
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Open-end funds issue shares at their net asset value and stand ready to redeem them.
Open-end funds issue shares at their net asset value and stand ready to redeem them.
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Closed-end funds can redeem shares for investors at any time.
Closed-end funds can redeem shares for investors at any time.
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The management fee for mutual funds typically ranges from 0.5% to 1.5% of assets.
The management fee for mutual funds typically ranges from 0.5% to 1.5% of assets.
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Real Estate Investment Trusts (REITs) are mainly structured like open-end funds.
Real Estate Investment Trusts (REITs) are mainly structured like open-end funds.
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Commingled funds offer shares that are traded on stock exchanges.
Commingled funds offer shares that are traded on stock exchanges.
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Most management companies only manage one fund at a time.
Most management companies only manage one fund at a time.
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Investors in open-end mutual funds can liquidate their shares at the net asset value without selling through brokers.
Investors in open-end mutual funds can liquidate their shares at the net asset value without selling through brokers.
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A typical debt ratio for Real Estate Investment Trusts (REITs) is around 50%.
A typical debt ratio for Real Estate Investment Trusts (REITs) is around 50%.
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Collective investment funds are primarily designed for institutional investors only.
Collective investment funds are primarily designed for institutional investors only.
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Pension funds allow individuals to access their savings anytime during their working life.
Pension funds allow individuals to access their savings anytime during their working life.
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Insurance funds guarantee payments upon the occurrence of specific events.
Insurance funds guarantee payments upon the occurrence of specific events.
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Investment funds allow for unrestricted access to funds, enabling deposits and withdrawals at any time.
Investment funds allow for unrestricted access to funds, enabling deposits and withdrawals at any time.
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The primary goal of collective investment funds is to gather money from a variety of investors for capital growth.
The primary goal of collective investment funds is to gather money from a variety of investors for capital growth.
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Collective investment funds can also invest in rental properties but they rarely focus on this area.
Collective investment funds can also invest in rental properties but they rarely focus on this area.
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Publicly offered funds are one type of collective investment fund that attracts everyday investors.
Publicly offered funds are one type of collective investment fund that attracts everyday investors.
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Collective investments can only involve money from individual investors and not from companies or organizations.
Collective investments can only involve money from individual investors and not from companies or organizations.
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Study Notes
### Mutual Funds
- Mutual funds are financial intermediaries that connect savers and borrowers, gathering savings from deposits and investing in financial instruments like bonds, equities, and money market instruments
- Mutual funds pool assets of individual investors and divide claims to those assets proportionally to the number of shares purchased
Investment Companies
- Investment companies facilitate small investors to benefit from large-scale investment strategies
- Investment companies provide administrative support to investors, manage funds, and offer diversified investment opportunities to investors
- Investment companies handle record keeping, track investments, and manage dividends and interest payments
- Investment companies can invest in a wide variety of categories, including real estate, stock markets, and bonds, catering to diverse investor requirements
Net Asset Value (NAV)
- NAV represents the market value of assets minus liabilities divided by the number of shares, reflecting the value of each share
- NAV is calculated by subtracting a fund's liabilities from the market value of its assets (inclusive of income and earnings) and dividing by the number of outstanding shares
Types of Investment Companies
- Investment companies are classified into Unit Investment Trusts (UITs) and Managed Investment Companies
- Unit Investment Trusts (UITs) are unmanaged funds with fixed portfolios and limited flexibility for changes
- Managed Investment Companies are actively managed funds that involve buying and selling securities regularly
- Managed Investment Companies further categorize into Open-end and Closed-end companies
Open-end Companies: Mutual Funds
- Open-end companies, commonly known as mutual funds, stand ready to issue or redeem shares at their Net Asset Value (NAV), allowing flexibility for investors to buy or sell shares
- Investors in open-end funds can buy or sell shares directly from the fund at NAV
Closed-end Companies
- Closed-end companies do not issue or redeem shares and investors wishing to sell their shares must do so through exchanges
- Shares of closed-end companies trade on exchanges and their prices can vary from NAV
Other Investment Organizations
- Commingled Funds allow investors to pool money for collective investment and are managed for a fee
- Real Estate Investment Trusts (REITs) invest in real estate or real estate loans and can be organized as equity or mortgage trusts, with equity trusts investing in real estate directly and mortgage trusts focusing on mortgages and real estate loans
- Hedge Funds offer investment opportunities to wealthy investors by pooling assets, allowing for various investment strategies like derivatives, short selling, leverage, and asset class diversification. Hedge funds typically have restricted redemption periods with lockups to meet investment goals
Mutual Fund Structure
- Mutual funds are often corporations or business trusts with independent management not directly employed by the fund
Government Support for Investment Funds
- Governments encourage investment funds to attract wider investor participation
- Investment funds are commonly known as "publicly offered" or "non-specialized" funds, attracting individual and institutional investor participation
Collective Investment Funds
- Collective investment funds pool capital from various investors and invest it according to defined goals
- They are generally categorized into Pension Funds, Insurance Funds, and Investment Funds
- Investment funds offer flexibility for investors to invest and withdraw funds at any time, not tied to specific events
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Description
This quiz explores the essential concepts of mutual funds and investment companies, detailing how they function as financial intermediaries and the significance of Net Asset Value (NAV). It covers the pooling of assets, administrative support provided by investment companies, and various investment categories. Test your knowledge on these crucial financial instruments and their roles in the market.
