Unit 8 Flashcards
An investment company that continuously offers new equity shares in an actively managed portfolio of securities
Mutual fund
An investment company, either open or closed end, that trades various types of securities under the direction of its portfolio manager, in accordance with specific objectives stated in the prospectus
Management Company
An investment company that sells redeemable shares in a professionally selected portfolio of securities
Unit investment trust (UIT)
A company engaged in the business of pooling investors money and investing and reinvesting in securities.
Ex: face amount certificate companies, unit investment trusts, management companies
Investment company
An investment company that issued certificates obligating it to pay an investor a stated amount of money on a specific future date. The investor pays into the certificate in periodic payments or in a lump sum
Face amount certificate company (FAC)
A security that the issuer redeems upon the holders request.
Ex: shares in an open end investment company or Treasury Notes
Redeemable security
NAV per share plus any applicable sales charge
Public offering price (POP)
- An indication by an investor, trader or dealer of a willingness to buy a security or commodity; the price at which an investor can sell to a BD
- The price at which an investor can redeem shares of a mutual fund
Bid price
An indication by a trader or dealer of a willingness to sell a security or a commodity; the price at which an investor can buy a security
Ask price
An investment company that issued a fixed number of shares in an actively managed portfolio of securities. The shares may be of several classes and they are trades in the secondary marketplace either on an exchange or over the counter. The market price of the shares if determines by supply and demand
Closed end management company
- A class of mutual fund shares issued with a front end load
- Shares of a company that have differing characteristics from other classes of stock
Class A share
A no binding agreement between a purchaser of mutual funds and the fund underwriter that allows the investor up to 13 months to reach a specified dollar purchase
Letter of intent (LOI)
The sale of mutual fund shares in an amount just below the level at which the purchaser would qualify for reduced sales charge. This violates the Conduct Rules
Breakpoint sale
The schedule of sales charge discounts a mutual fund offers for lump sum or cumulative investments. Available to any person. Investment clubs or associations forms for the purpose of investing do not qualify.
Breakpoint
A fee that is charged when mutual fund shares or variable annuity contracts are redeemed. It is typically found with Class B shares (and for one year with Class C shares). It declines annually, decreasing to zero over an extended holding period, up to 8 years, as described in the prospectus
Back end load
A mutual fund commission or sales charge that is included in the purchase price
Front end load
A class of mutual fund shares issued with both a level load and a back end load
Class D
A class of mutual fund shares issued with a level load
Class C
A class of mutual fund shares issued with a back end load. A mutual fund offers different classes of shares to allow investors to choose the type of sales charge they will pay
Class B
The term used to describe a mutual fund whose shares are offered without a sales charge
No load fund
Fees used to cover the costs of marketing and distributing a fund to investors. Used to compensate registered representatives for servicing an account but should t be confused with sales charges
12b-1 Fees
The source of an investment company’s dividend payments
Net investment income (NII)
A mutual fund account where the investor commits to depositing amounts on a regular basis in addition to the initial sum invested
Voluntary accumulation plan
A system of buying mutual fund shares in fixed dollar amounts at regular fixed intervals regardless of the shares price. The investor purchases more shares when prices are low and fewer shares when prices are high thus lowering the average cost per share over time
Dollar cost averaging
A ratio for comparing a mutual funds efficiency by dividing the funds expenses by its net assets
Expense ratio
The amount earned by a taxpayer when an asset is sold for a profit
Realized gain
An investment company to which Subchapter M of the Internal Revenue Code grants special status that allows the flow through of tax consequences on a distribution to shareholders
Regulated investment company (RIC)
A means for an investment company to avoid taxation on net investment income distributed to shareholders. If a mutual fund acts as a conduit for the distributor of net investment income, it may qualify as a regulated investment company and be taxed only on the income the fund retains
Conduit theory
NII Formula
Dividends + interest - expense of fund
(D+1-E)
A diversified common stock funds that has capital appreciation as its primary goal. It invests in companies that reinvest most of their earnings for expansion, research or development
Growth fund
Total number of shares of common stock outstanding multiplied by the current market value per share
Market Capitalization
Portfolio consists of companies with a market capitalization of more than $10 billion
Large cap Fund
Also known as aggressive growth funds they are willing to take greater risk to maximize capital appreciation
Performance fund
Less aggressive and have in their portfolios shares of companies with a market capitalization between $2 billion and $10 billion
Mid cap funds
Focuses on companies whose stocks are currently undervalued
Value funds
Primarily composed of stocks that stresses current income over growth
Equity income funds
Buys securities of companies that may benefit from a change within the companies or in the economy
Speculative
Special situation funds
Offer high appreciation potential but may also pose higher risks to the investor as a result of the concentration of investments
Speculative
Includes gold, technology, pharmaceutical, biotechnology, geographic funds
Sector funds
Invests in securities on which call options can be sold
Option income funds
Stock funds with a portfolio comprising a number of different classes of stock. Allows investors to diversify their investment via management and securities in a single fund
Blend/Core funds
Invests in securities that mirror a market index. Buys and sells securities in a manner that mirrors the composition of the selected index.
Lower management costs
Index funds
Worldwide funds that invest in securities of both the US and foreign countries
Currency risk
Political risk
Purchased to diversity portfolio
Global funds
Invest only in the securities of foreign companies. Headquarters is outside the US. Primary objective is long term appreciation
Some seem current income
International funds
Invest in stocks for appreciation and bonds for income. Securities purchased according to formula the manager can adjust to reflect market conditions.
Conservative
Aka: hybrid funds
Balanced funds
Offers investors a guarantee of principal, adjusted for fund dividends and distributions on a set future date (maturity) while providing opportunities for higher returns through investment in higher risk and higher expected return asset classes such as equities
Principal protected mutual funds
Corporations created by congress to foster a public purpose such as affordable housing
Government sponsored enterprises (GSE)
A mutual fund whose investment objective is to provide current income while preserving safety of capital through investing ins e Curitiba backed by the US Treasury or issued by a government agency
US government and agency bond fund
A mutual fund whose investment objective is to provide stable income with a minimal capital risk. It invests in come producing instruments that may include corporate, government or municipal bonds
Bond fund
Designed to manage investment risk
Does not provide guaranteed income
Not risk free
Date set closest to year an investor anticipates needing the money
Aka: life cycle fund
Target date fund
A mutual fund that splits its investment assets amount stocks, bonds and other vehicles with a view to provide a consistent return for the investor
Asset allocation fund
What are the risks of ETFs?
Index risk
Tracking risk
What are the risks of CEFs?
Pricing risk
Leverage risk
What are the risks of UITs?
Market risk
Interest rate risk
What’s re the risks of mutual funds?
Market risk
Interest rate risk
Net redemptions
Expense risk
Tenure risk
What are benefits of ETFs?
Taxation
Expense ratio
Portfolio specificity
Exchange traded
Leverage and inverse
What are benefits of CEFs?
Exchange traded
Pricing
Leverage
What are benefits of UITs?
Income
Liquidity
Rolling over proceeds
What are the benefits of mutual funds?
Choice of objectives
Convenience
Liquidity
Minimum initial investment
Automated investing and withdrawal
Convenient tax info
Combination privilege
Exchanges within family of funds
Leveraged and inverse funds
What are the uses of ETFs?
Asset allocation
Following industry trends
Balancing a portfolio
Speculative trading
Hedging
A mutual fund that invests in short term debt instruments. Funds objective is to earn interest while maintaining a stable net asset value of $1 per share. Usually sold with no load, the fund may also offer draft writing privileges and low opening investments
Money market fund
