Packaged Products Flashcards
Investment Company
is a financial institution investing in securities
The most appealing aspects of investment companies
-diversification
-liquidity
-professional management
Investment companies are designed
for long-term investing
3 classifications of investment companies are
- Face amount certificates companies
- Unit Investment Trusts (UITs)
- Management companies
Face amount certificates companies
debt certificates at a discount that pay purchasers a face value amount at maturity
Unit Investment Trusts features
-issue only redeemable units
-do not have an investment or portfolio manager
-are supervised but not managed
-pay investors “interest” not dividends
Open-end
issue and redeem shares every day
Management companies features
-open-end
-closed-end
-diversified
-non diversified
closed-end
issue shares once, which are then publicly traded
diversified
has at least 75% of assets regulated
Open End investment company
-mutual fund
-shareholders share part of the fund’s gains, losses, and income
-issue only redeemable shares
Net asset value (NAV)
equals the total assets of the fund less the total liabilities divided by the total number of shares
Assets - liabilities divided by # shares = NAV
ASK
NAV + max sales load = offering price
Forward pricing
investors get the next calculated bid or ask price after the order is entered
Max sales load
under act 1940 9%
under FINRA 8.5%
Closed end investment company characteristics
-does not issue redeemable shares
-prices are determined by supply and demand
-NAV per share is greater than the ASK, the fund is a closed end fund
-charge a commission fee
-
Business Development Company (BDC) characteristics
-a type of closed-end fund
-provides debt capital to small and medium sized companies
-target investors are retail clients with high risk tolerance
-BDC are required to distribute at least 90% of their income as dividends
-have high yields
Both open-end & closed-end companies are subject to
market risk
The major difference between closed-end and open-end funds
Capitalization
investment companies vote to
-elect the board of directors
-change investment objectives
-change the investment advisory firm used
diversified common stock fund
invests in common stocks, in different industries and fluctuate with the changing value
Specialized/sector fund
invests in one industry or one specific area
(riskiest type of fund)
Growth Fund
appreciation of capital
-do not pay dividends and have lower yields
-invests in small-cap common stocks
Balanced funds
invests in a diversified mix of bonds, preferred stocks and common stocks
(least amount of volatility and appreciation)
