CH4 Flashcards
What are investment companies?
Financial intermediaries that invest the funds of individual investors in securities or other assets.
Define net asset value (NAV).
Assets minus liabilities per share.
What are the main functions of investment companies?
- Record keeping and administration
- Diversification and divisibility
- Professional management
- Lower transaction costs
What are Managed Investment Companies?
A professional investment firm that manages a portfolio for an annual fee.
What is an open-end fund?
A fund that issues or redeems its shares at net asset value.
What is a closed-end fund?
A fund whose shares may not be redeemed and are traded at prices that can differ from net asset value.
What are commingled funds?
Partnership of investors pooling funds for trusts/larger retirement accounts with professional management for a fee.
What are hedge funds?
Private investment pools exempt from SEC regulation, can be speculative in nature.
What defines a Money Market Mutual Fund (MMM Fund)?
Invests in commercial paper, repurchase agreements, and CDs.
What are equity sector funds?
Funds that concentrate stocks in a particular industry.
What are international funds?
Funds that invest in worldwide securities, excluding the U.S.A.
Define a balanced fund.
A fund that holds both equities and fixed-income securities.
What is a life cycle fund?
A fund that holds both equities and fixed-income securities in stable proportions.
What characterizes a targeted-maturity life cycle fund?
Funds that become more conservative as the investor ages.
What are asset allocation/flexible funds?
Funds that hold both equities and fixed-income securities, with proportions varying according to market forecast.
What are index funds?
Funds that try to match performance of broad market index by buying shares in proportion to their representation in the index.
What is a fund of funds?
Mutual funds that primarily invest in other mutual funds.
What are operating expenses in mutual funds?
Costs incurred by mutual fund in operating portfolio.
What is a front-end load?
Commission or sales charge paid when purchasing shares.
What is a back-end load?
An ‘exit’ fee incurred when shares are sold.
What are 12b-1 charges?
Annual fees charged by mutual funds to pay for marketing/distribution costs.
True or False: Gross performance of load funds is statistically identical to gross performance of no-load funds.
True.
What happens to funds with high expenses?
They tend to be poorer performers.
What are general tax rules for mutual funds?
- Fund not taxed if diversified and income distributed
- Investor taxed on capital gain and dividend distributions.
Define turnover in mutual funds.
Ratio of trading activity to assets of portfolio.
What are exchange-traded funds (ETFs)?
Offshoots of mutual funds that allow investors to trade entire portfolios much like shares of stock.
What is the implication of fund turnover?
Fund pays commission costs on portfolio purchases and sales charged against NAV.
