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Indirect investing

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Indirect investing

  1. 1. 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.
  2. 2. Types of InvestmentCompanies Unit Investment Trust  An unmanaged form of investment company, typically holding fixed-income securities, offering investor diversification and minimum operating costs.
  3. 3. 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.
  4. 4. 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
  5. 5. 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
  6. 6. 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
  7. 7. Mutual Fund InvestmentObjectives Growth Funds Balanced Funds Hybrid Funds Corporate Bond Funds Strategic Income Funds High Yield Funds
  8. 8. 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.
  9. 9. 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
  10. 10. Measures of FundPerformance How Important are Expenses?  Load c harges  Annual operating expenses CONSISTENCY OF PERFORMANCE  Always being a controversy

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