Investment Companies Flashcards
Investment Company Act of 1940
Act passed to regulate Investment companies
Investment Advisers Act of 1940
Act passed to regulate Advising companies
Fixed Unit Investment Trust (UIT)
Buy large block of bonds (usually municipal) and sell off interest. Once matured will send out principal payments and the UIT will no longer exist.
Non-fixed UIT
Buys mutual fund shares for benefit of investors. Allow access for investors to mutual funds that have very large minimums.
Face Amount Company
Don’t exist in real world anymore. Investment company that assisted people saving for retirement.
Management Company AKA…
AKA Mutual Fund. Pools investors assets and invests them in a portfolio of securities in order to meet a stated objective.
Open End Investment Company
Continuous Primary Offering.
Closed End Investment Company
Issues a fixed amount of shares.
Compare Open End vs. Closed End Investment Companies
See Screenshot on desktop.
Capitalization
How much money a mutual fund can take in
How are Open Ended Investment Companies Priced?
Formula. NAV + Shares Charged = POP
How are Closed Ended Investment Companies Priced?
Supply and Demand
Diversified Mutual Funds
75% in securities issued by other entities. No more than 5% of portfolio invested in one company. This 5% can’t be more than 10% ownership in companies. The idea is diversify not control. Because mutual funds are so large 5% of their portfolio could take over a company- hence the 10% rule.
Investment Company Registration Stipulations
Minimum net worth of $100,000.
At least 100 shareholders within 90 days of registration.
Clearly defined investment objectives.
Board of Directors for Mutual Funds
Max of 49% can be ‘interested’ in the company (hold a job there).
At least 51% must be non interested.
Role of the board- set investment objectives for the funds. Hire investment advisor.
Investment Advisor
Hired by BOD. Asset selection. Goal is to meet the objectives set forth by the BOD. Paid a fee based on % of NAV. (Net Asset Value). More aggressive objectives bring a higher % fee.
Determines tax consequences for investors when the mutual funds makes distributions to shareholders
Custodian Bank
Safeguards the portfolio. Holds the shares/assets of the mutual fund.
Transfer Agent
In charge of issuing and redeeming shares.
Expense Ratio
The sum of the fees paid to the entities. This allows investors to see how much they spend on investing their money.
