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Chapter 4

Chapter 4. Mutual Funds and Other Investment Companies. Services of Investment Companies. Administration & record keeping Diversification & divisibility Professional management Reduced transaction costs. Net Asset Value. Used as a basis for valuation of investment company shares

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Chapter 4

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  1. Chapter4 Mutual Funds and Other Investment Companies

  2. Services of Investment Companies • Administration & record keeping • Diversification & divisibility • Professional management • Reduced transaction costs

  3. Net Asset Value • Used as a basis for valuation of investment company shares • Selling new shares • Redeeming existing shares Calculation Market Value of Assets - Liabilities Shares Outstanding

  4. Types of Investment Organizations • Unit Trusts • Managed Investment Companies • Open-End • Closed-End • Other investment organizations • Commingled funds • REITs • Hedge Funds

  5. Open-End and Closed-End Funds: Key Differences Shares Outstanding • Closed-end: no change unless new stock is offered • Open-end: changes when new shares are sold or old shares are redeemed Pricing • Open-end: Net Asset Value(NAV) • Closed-end: Premium or discount to NAV

  6. Investment Policies • Money Market • Fixed Income • Equity • Balance & Income • Asset Allocation • Indexed • Specialized Sector

  7. Costs of Investing in Mutual Funds • Fee Structure • Front-end load • Back-end load • Operating expenses • 12 b-1 charges • distribution costs paid by the fund • Alternative to a load • Fees and performance

  8. Exchange Traded Funds • ETF allow investors to trade index portfolios like shares of stock • Examples - SPDRs andWebs • Potential advantages • Trade continuously • Lower taxes • Lower costs • Potential disadvantages

  9. Sources of Information on Mutual Funds • Wiesenberger’s Investment Companies • Morningstar • Investment Company Institute • Popular press • Investment services

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