Chapter_004.ppt
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This document discusses investment companies such as mutual funds. It covers the basics of how mutual funds work including their net asset value calculation and costs involved. The document outlines different types of mutual funds such as money market, equity, bond and balanced funds. It also discusses potential issues like trading scandals and evaluates the performance of mutual funds compared to market indexes. Sources of information on mutual funds are provided at the end.
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- Strategies for selecting funds include matching goals, researching performance data, and reading prospectuses.
Corporate restructuring strategic forms, financing methods
Restructuring in corporate businesses, its strategic forms & financing methods are interpreted. The basic forms are highlighted using a suitable example & the control, or transfer of finances as well the raising of the equity capital in business environment.
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Wayne lippman - investing in mutual funds
Identify why people invest in mutual funds.
Distinguish among the four major objectives of mutual funds.
Classify mutual funds by portfolio.
List the unique benefits of mutual funds.
Describe the various charges and fees associated with investing in mutual funds.
Explain how to select a mutual fund in which to invest.
Recognize valid reasons for selling a mutual fund investment.
open-end investment company combining funds of investors who have purchased shares in a diversified portfolio of securities.
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Chapter_004.ppt
- 1. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Mutual Funds and Other Investment Companies CHAPTER 4
- 3. 4-3 Investment Companies Administration & record keeping Diversification & divisibility Professional management Reduced transaction costs
- 4. 4-4 Investment Companies: Net Asset Value 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
- 5. 4-5 4.2 TYPES OF INVESTMENT COMPANIES
- 6. 4-6 Unit Trusts Pools of money fixed for the life of the fund Little active management
- 7. 4-7 Managed Investment Companies: Open-End and Closed-End Open-End – Sold at Net Asset Value (NAV) – Changes when new shares are sold or old shares are redeemed Closed-End – Sold at premium or discount to NAV – No change unless new stock is offered
- 8. 4-8 Figure 4.1 Closed-End Mutual Funds
- 9. 4-9 Other Investment Organizations – Commingled funds – REITs – Hedge Funds
- 11. 4-11 Investment Policies Described in the prospectus Management companies manage a family of mutual funds. Some examples include: – Fidelity – Vanguard – Putnam – Dreyfus
- 12. 4-12 Types of Mutual Funds Money Market Equity Specialized Sector Bond
- 13. 4-13 Types of Mutual Funds Balanced Funds Asset Allocation and Flexible Indexed International
- 14. 4-14 Table 4.1 Mutual Funds by Investment Classification
- 15. 4-15 How Funds Are Sold Directly marketed Sales force distributed Revenue sharing on sales force distributed – Potential conflicts of interest – It must be disclosed to the investor Financial supermarkets
- 16. 4-16 4.4 COSTS OF INVESTING IN MUTUAL FUNDS
- 17. 4-17 Fee Structure 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
- 18. 4-18 Example 4.1 From Text
- 19. 4-19 Fees and Mutual Fund Returns 1 0 0 NAV NAV Income and capital gain distributions Rate of return = NAV
- 20. 4-20 Fees and Mutual Fund Returns: An Example Initial NAV = $20 Income distributions of $.15 Capital gain distributions of $.05 Ending NAV = $20.10: $20.10 - $20.00 + $.15 + $.05 Rate of Return = 1.5% $20.00
- 21. 4-21 Table 4.2 Impacts of Costs on Investment Performance
- 22. 4-22 Trading Scandal with Mutual Funds Late trading – allowing some investors to purchase or sell after the market closes Market timing – allowing investors to buy or sell on stale net asset values – International Net effect is to transfer value from other shareholders to privileged traders – Reduction in the rate of return of the mutual fund
- 23. 4-23 Potential Reforms Strict 4:00 PM cutoff with late orders executed the following trading day Fair value pricing with net asset values being adjusted for trading in open markets Imposition of redemption fees
- 24. 4-24 4.5 TAXATION OF MUTUAL FUND INCOME
- 25. 4-25 Taxation of Mutual Fund Income Investor directed portfolios can be structured to take advantage of taxes while mutual funds cannot High turnover leads to tax inefficiency More disclosure on taxes was required in 2000
- 27. 4-27 Exchange Traded Funds ETF allow investors to trade index portfolios like shares of stock Examples – SPDRs, Diamonds, and WEBS Potential advantages – Trade continuously – Lower taxes – Lower costs Potential disadvantages
- 28. 4-28 4.7 MUTUAL FUND INVESTMENT PERFORMANCE: A FIRST LOOK
- 29. 4-29 Mutual Fund Performance Evidence shows that average mutual fund performance is generally less than broad market performance Evidence suggests that over certain horizons some persistence in positive performance – Evidence is not conclusive – Some inconsistencies
- 30. 4-30 Figure 4.2 Diversified Equity Funds Versus Wilshire 5000 Index
- 31. 4-31 Table 4.4 Consistency of Investment Results
- 32. 4-32 4.8 INFORMATION ON MUTUAL FUNDS
- 33. 4-33 Sources of Information Wiesenberger’s Investment Companies Morningstar (www.morningstar.com) Yahoo (finance.yahoo.com/funds) Investment Company Institute Popular press Investment services