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CFP > Investments: Investment Companies > Flashcards

Investments: Investment Companies Flashcards

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CFP® flashcards
1
Q

What are the three types of investment companies?

A
  1. close end
  2. Open end
  3. Unit Investment Trust (UIT)
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2
Q

Closed End Funds

A
  • fixed initial market capitalization - specific number of shares sold to the public.
  • shares traded on an exchange, no new shares issued.
  • shares may trade at a premium or discount to net asset value
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3
Q

Open end funds

A
  • have an unlimited number of shares.
  • when contributions are receives they issue more shares
  • shares are bought and redeemed directly from the fund family.
  • shares are traded at Net Asset Value (NAV)

NAV = (assets-liabilities)/shares outstanding.

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4
Q

Unit Investment Trust

A
  • can be equity or fixed income
  • managed by trustee, no investment manager
  • passively managed and self liquidating.
  • issues units not shares
  • units can be sold back to the UIT at NAV
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5
Q

Mutual fund: Aggressive Growth

A

Invest in small caps, highest potential for capital appreciation

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6
Q

Mutual fund - Growth

A

Invest in equities with a high P/E, little to no dividends and are growing earnings and revenue rapidly

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7
Q

Mutual fund - Growth & Income

A

Invest in equities and income-producing assets.

Primary objective to provide capital appreciation and income

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8
Q

Mutual fund: value fund

A

Invest in undervalued funds that have a low P/E, high dividend yields and a positive future outlook

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9
Q

Mutual Fund: Balance fund

A
  • Invest in more bonds than a typical equity fund.

- well balanced return in form of income and capital appreciation

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10
Q

Mutu fund: Bond Fund

A

Provides investors with a liquid bond investment that is cost effective and conservative

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11
Q

Mutual funds: index fund

A

Tracks performance of various market indices.

Passive investment that are tax efficient

Low turnover rates - minimize cap gains distributions

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12
Q

Mutual funds: sector funds

A
  • invest in sectors of the U.S. economy.

- not well diversified and have a low r-squared

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13
Q

Mutual funds: asset allocation funds or lifecycle funds

A
  • retirement based funds, well diversified.

-

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14
Q

Mutual funds:global funds

A

Invest in both international and U.S. securities

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15
Q

Mutual funds: international funds

A

Invest in only international securities, no U.S. securities.

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16
Q

What does it mean if a fund is a No load fund?

A

Does not charge a sales commission when purchased or redeemed

17
Q

What is a load fund and what are the types?

A

-load funds charge a sales commission when purchased or redeemed.

Types:
A Shares
B shares
C shares

18
Q

Load fund: A Shares

A
  • front end load (up front sales commission) - when purchased
  • SMALL 12b-1 fee, marketing fee used to pay distribution expenses
  • no redemeption fee or back-end load.
19
Q

Load Fund: B Shares

A
  • back end sales load (redemption fee)
  • high 12B-1 fee, typically the maximum (1%)
  • no front end sales load
  • can be converted to A shares
  • most funds don’t offer B shares
20
Q

Load Fund: C Shares

A
  • no front end load (purchase fee)
  • small back end load And charge maximum 12b-1 fee
  • good for short term investors
21
Q

Exchange Traded Funds (ETFs)

A
  • can be traded intra-day
  • no active trading because etf is tracking a stock index. Only when stocks are added or removed from an index is there selling in etc.
  • low asset turnover (tax efficient) and passive investments.
22
Q

Real Estate Investment Trust (REITS)

A
  • low correlation with the stock market.
  • must distribute 90% if investment income to shareholder to maintain tax -exempt status.
  • 3 types:
  1. Equity
  2. Mortgage
  3. Hybrid
23
Q

What is an equity REIT?

A

Invest in real estate for capital appreciation.

Income generated from rental income and appreciation

24
Q

What is a mortgage REIT?

A
  • invest mostly in mortgages and construction loans

- make the spread between lending and borrowing rate

25
Q

What are American Depository Receipts? (ADR’s)

A

-they represent foreign stock held in domestic banks foreign branch.

***ADR’s do not eliminate exchange rate risk.

26
Q

What is considered an alternative investment?

A

-any asset that is not one of the three traditional classes bonds, equities, and cash

27
Q

What are the common characteristics of an alternative investment?

A
  • high risk investment, large minimum purchase requirements and higher fees
  • actively managed, may use leverage to increase returns
  • limited or no liquidity. No secondary market.
28
Q

What are some common alternative investments?

A
  • real estate
  • REITS
  • limited partnerships
  • hedge funds
  • collectibles
  • precious metals
  • crypto currency

CFP (27 decks)

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