investment companies Flashcards
what are the different types of investment companies?
closed end
open end
unit investment trust
what are closed end investment companies?
have a fixed market capitalization because a specific number of shares are initially sold to the public
those shares are then traded on an exchange
no new shares are issued by the fund
shares can trade at a premium or discount to net asset value
what are open end investment companies?
have an unlimited number of shares
shares are bought and redeemed directly from the fund family
shares trade at NAV
what is the formula for NAV?
(assets - liabilities) / shares outstanding
what are unit investment trusts?
they can be equity or fixed income
managed by a trustee - no investment manager
are self liquidating, have passive management and no trading of assets within the trust
issues “units” not shares
units can be sold back to the UIT at NAV but it is very thinly traded
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
objective is to provide capital appreciation and income
what is a value mutual fund?
invests in undervalued funds that have a low P/E, high dividend yields and a positive future outlook
what are index mutual funds?
tracks the performance of various market indices
passive investment strategy and is tax efficient (low turnover rates which minimizes capital gains distributions)
what is a no load fund?
does not charge a sales commission when purchased or redeemed
what is a load fund?
charges a sales commission when purchased or redeemed
ex: A shares, B shares and C shares
what are A shares?
A shares have a front end load
small 12b-1 fee, which is the marketing fee used to pay distribution expenses aka trailing commissions)
no redemption fee or back end load
A shares are appropriate for long term investors because of the low 12b-1 fees
what are B shares?
contain a back end sales load
also have a high 12b-2 fee, typically the max fee is 1%
no front end sales load
B shares can be converted into A shares - wouldnt pay the front end sales load but would pay the higher 12b-1 fee
what are C shares?
do not charge a front end load
usually charge a small back end load and charge the maximum 12b-1 fee of 1%
usually appropriate for short term investors
C shares to not convert to A shares
what is an exchange traded fund?
a portfolio of stocks that represent an index
passively managed
traded like stocks
more tax efficient investment because of the low asset turnover and passive investment strategy
