What is an InvestmentCompany A financial company that sells shares in itself to the public and uses these funds to invest in a portfolio of securities. By pooling the funds of thousands of investors, a widely diversified portfolio of financial assets can be purchased and the investment company can offer its owners a variety of services.
Types of InvestmentCompanies Unit Investment Trust An unmanaged form of investment company, typically holding fixed-income securities, offering investor diversification and minimum operating costs.
Types of InvestmentCompanies Closed-End Investment Company An investment company with a fixed capitalization whose shares trade on exchange markets. Open-End Investment Company (Mutual Funds) An investment company whose capitalization constantly changes as new shares are sold and outstanding shares are redeemed.
Net Asset Value of a Mutual Fund Net Asset Value The total value of the securities in an investment company’s portfolio divided by the number of investment company fund shares currently outstanding. NAV =Total market value of assets under management Number of mutual fund shares outstanding If NAV > Market Price, fund is selling at a discount If NAV < Market Price, fund is selling at a premium
Net Asset Value XYZ mutual fund holds a portfolio consisting of following shares POL (10000 shares @ 440) PGF (5000 shares @ 42) PSO (5000 shares @ 388) NBP (10000 shares @ 258) OGDC (10000 shares @ 147) The number of shares outstanding are 20000. Calculate NAV
Major Types of Mutual Funds Money Market Funds Stock (also called equity) funds and bond and income fund International Funds Global Funds Single-Country Funds Exchange-Traded Funds
Mutual Fund InvestmentObjectives Growth Funds Balanced Funds Hybrid Funds Corporate Bond Funds Strategic Income Funds High Yield Funds
Mutual Funds Subdivision Load Funds Funds that charge a sales fee for the costs involved in selling fund to the investors. No-Load Funds Funds that charge no sales fee. Investors respond to these funds through advertisements in the financial press.
Measures of FundPerformance Total Return Approach TR = Dividend yield + Capital gain yield Morningstar Ratings Five star rating system Five star being the highest rating and one star the lowest rating. Benchmarks
Measures of FundPerformance How Important are Expenses? Load c harges Annual operating expenses CONSISTENCY OF PERFORMANCE Always being a controversy