Investment Companies Flashcards
what are the 3 types of investment companies?
- closed end
- open end
- unit investment trust (UIT)
what are the characteristics of a closed end fund?
- have a fixed initial market capitalization
- a specific number of shares are initially sold to the public
- shares are then traded on an organized exchange
- no new shares issued by the fund
- sold at a premium or discount to NAV
what are the characteristics of an open end fund?
- unlimited number of shares
- fund family will continue to issue shares so long as the fund receives contributions
- shares are bought and sold directly from the fund family
- shares trade at NAV
what is the formula for NAV?
NAV = (assets - liabilities) / shares outstanding
what are the characteristics of a unit investment trust (UIT)?
- can be fixed or equity
- managed by trustee
- no investment manager
- self liquidating
- passive management
- no trading of assets within the trust
- issues “units” not shares
- units can be sold back to UIT at NAV
what is an aggressive growth mutual fund?
invests in small caps and offers the greatest potential for capital appreciation
what is a growth mutual fund?
invests in equities that have a high P/E, little to no dividends, and are growing earnings and revenue rapidly
what is a growth and income mutual fund?
invests in equities and income-producing assets
primary objective is to provide capital appreciation and income
what is a value mutual fund?
invests in undervalued funds that have a low P/E ratio, high dividend yields, and a positive future outlook
what is a balanced mutual fund?
invests in more bonds than a typical equity fund
seeks a well-balanced return in the form of both income and capital appreciation
what is a bond mutual fund?
provides investors with a liquid bond investment that is cost effective and fairly conservative
what is a money market mutual fund?
highly liquid, appropriate for an emergency fund, and invests in securities with maturities of less than 90 days
what is an index mutual fund?
tracks the performance of various market indices
passive investment strategy and is tax efficient
low turnover rates which minimizes cap gains distributions
what is a sector mutual fund?
invests in sectors of the US economy (tech, healthcare, financials, etc.)
not well diversified, low r-squared
what is an asset allocation mutual fund (aka lifecycle mutual fund)?
well-diversified portfolio including stocks, fixed income, international, and money market securities
asset allocation changes as the market conditions change or as investor gets closer to retirement goal
