Summary

This document discusses characteristics of mutual funds, including types (open-end, closed-end), investment classes, and fees. It also describes the benefits and regulation of mutual funds.

Full Transcript

Benefits of Mutual funds? Liquidity intermediation: (investors can quickly convert investments to cash ) denomination intermediation :( investors can participate in equity and debt offerings that, individually, diversification: ( investors immediately realized the benefits of diversification even fo...

Benefits of Mutual funds? Liquidity intermediation: (investors can quickly convert investments to cash ) denomination intermediation :( investors can participate in equity and debt offerings that, individually, diversification: ( investors immediately realized the benefits of diversification even for small investments ) costs advantages :( the mutual find can negotiate lower transaction fee than would be available to the managerial expertise (many investors prefer to rely on professional money managers to select their require more capital than they possess ) individual investor ) investments Ownership trends? (Mutual funds) → lots of changes over the past 20 years → in 1980 only 5.7% of households held mutual funds shares → beginning of 2013 it was 75% → Mutual finals accounts for $5.3 trillion of the retirement market (estimated at $19.5 trillion) Open-end funds? The investors may by or redeem shares at any points where the price is determined by the net asset value of the find Closed- end funds? Investment classes? Hybrid funds? Money market fund? A fixed number of non redeemable shares are sold through an initial offering and are then traded in the OTC market. Price for the shares is determined by supply and demand factors 4 type of primary classes of mutual funds available to investors: stock (equity) funds ( $8.15 trillion = 52% ) bond funds ($3.41 trillion = 22%) hybrid funds ( $1.34 trillion -8% ) money market funds ($2.76 trillion = 18% index funds and hedge funds Numbers = distribution of assets Combine stocks and bonds into a single fund accents for about 5% of all mutual funds accounts. Open -end funds that invest only in money market securities offer check-writing privileges Net assets have grown dramatically offer higher returns then bank deposits but funds are not federally insured distribution: Index funds ? Special class of mutual fund (Fit into any category Discussed ) The fund Contains the stock Of the index It’s mimicking ( for an S&P 500 index find → would had the equities offer benefits Of traditional mutual funds Without The fees of the professional Money Manager comprising the S&P 500 ) Fee structure of inversement funds ? Load funds (class A shares) -> upfront fee for buying the shares / no-load surfs → do not change this fee Deferred Load (class B shares) funds charge a fee when The shares are redeemed if the particular fini charges no front or pack rend las it is referred to as classe C shares other Mutual fund charges includes : → Contingent Deferred sales.( back hand fee that might disappear after a certain time ) → rédemption fee (same as back hand load ) → Exchange fee (Usually low → to Transfer money between in funds in the same family) → Account maintenance fee ( charges if the balance is low ) → 12b - 1 fee ( fée to pay marketing advertising, and commissions ) Mutual funds are Regulated by 4 laws: Régulations ? Security Act of 1933 (spécifies Disclosure Requirements) Security exchange Act of 1934 (détails anti - fraud rules) Inversement Company Act of 1940 (requires registration And minimal opération standards ) investment advisor act of 1940 ( regulates fund advisor) Mutual funds are the only Companies in the US that Are required by law to have independent directors ( 2001 sec rules) Hedge funds? independent directors must constitute a majority of the board they select and nominate other independent directors legal counsel to the independent directors must also be independent Special musical fund → received great attention after "collapse of long term capital management”. Different from typical mutual funds: high minimum investment (avg. $1 million) long term commitment of funds is required high fees ( typically 1% of assets + 20% of profits) highly levered little current regulation → often trying to take advantage of unusual spreads between security prices

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