Unit 6 Flashcards
what was the first canadian mutual fund and when was it created?
1932, it`s known today as the CI Canadian Investment Fund
what happens to mutual funds asset quantities during crises?
mutual fund assets fell, as the value of most securities declined. People sold their assets due to lower confidence in the market. Investors’ confidence has gradually returned after crises, so people buy some more, back to same levels as before & more.
what are the two types of MF structures?
closed-end and open-end
were the earliest Mutual Funds closed-end or open-end?
closed-end
what’s a closed-end MF?
they issue a fixed number of units when the MF is organized through an initial public offering (IPO). That number remains set until more units are authorized and issued.
After the IPO, investors can buy and sell units of a closed-end mutual fund through a secondary market such as
the Toronto Stock Exchange (TSX). This process does not normally involve the issuing company. Instead,
transactions occur between buyers and sellers.
The price of a closed-end mutual fund is subject to the market conditions of supply and demand. As a result,
the market price of the units may not reflect the fund’s underlying net asset value per unit (NAVPU). It may be
higher or lower than the NAVPU.
do closed-end mutual fund units cost reflect the NAVPU?
no, because the price is subject to supply and demand. the market price may be higher or lower than NAVPU
When are open-end Mutual funds offered?
continuously
what are the restrictions on number of units for closed-end and open-end mutual funds?
closed-end: a specific number is issued during an IPO.
open-end: no limit. the investment fund will issue units when demand increases, and redeem when investors want to sell them. matches demand.
who sells open-end funds?
investment fund managers
which between closed-end and open end MFs reflects NAVPU closest?
the open-end ones match NAVPU. closed-end market price fluctuates since there are a specific number of units in circulation & demand can therefore fluctuate.
how do the units of closed-end funds get issued and sold?
at first, a specific number of units is issued during an IPO (initial public offering), then those shares are bought and sold by investors through a secondary market such as TSX. it`s like fb marketplace for MFs.
how liquid are mutual funds?
Mutual funds are considered to be liquid investments that can be sold and
converted to cash very quickly and easily.
An investor simply needs to submit a
redemption request to you, the Dealing Representative, or to the investment fund
manager.
The redemption proceeds are usually sent to the investor within 2-3 business days. Some mutual funds may be more restrictive on their redemption policy if the underlying assets within the mutual fund portfolio
themselves cannot be easily sold
what do portfolio managers do?
Portfolio managers have greater access to research and more sophisticated analytical tools than the average investor.
They, with the help of their team, follow a rigorous process to research, analyze, and select only those securities that they believe best match the investment objectives of the mutual fund.
do mutual funds increase or decrease risks of volatility
compared to owning one security, mutual funds reduces the risk by diversifying : different types of securities from a number of different issuers.
how many securities does an average mutual fund hold?
. The average mutual fund
can hold dozens or hundreds of different securities. The securities may vary across
business sectors, geographical regions and other factors.
what does diversification do?
Mutual funds reduce the risk of owning one security by holding different types of
securities or securities from a number of different issuers.
The average mutual fund
can hold dozens or hundreds of different securities. The securities may vary across
business sectors, geographical regions and other factors.
By diversifying holdings,
mutual funds can ensure that an event that affects one issuer or business sector
does not affect the entire mutual fund portfolio.
The average investor would find it
difficult and very expensive to duplicate the level of diversification found in a
mutual fund. The Fund Facts for a given mutual fund shows the type of investment
held in the fund.
how does an investor know what securities are in the portfolio?
look at the Fund Facts info
what is the cost benefit of mutual funds?
they are considered low cost because the expenses of running the fund are shared amongst thousands of investors. that makes it affordable.
