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Understanding Mutual Funds and Investment Companies: Services, Structures, and Costs

This chapter delves into the essential services provided by investment companies, including administration, record-keeping, diversification, and professional management. It explores the significance of net asset value (NAV) in pricing shares, the differences between open-end and closed-end funds, and various types of investment organizations such as unit trusts and REITs. Additionally, it highlights the costs associated with investing in mutual funds, fee structures, and sources of information for potential investors. Gain insights into effective investment strategies and company operations.

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Understanding Mutual Funds and Investment Companies: Services, Structures, and Costs

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  1. Chapter4 Mutual Funds and Other Investment Companies

  2. Services of Investment Companies • Administration & record keeping • Diversification & divisibility • Professional management • Reduced transaction costs

  3. Net Asset Value • Used as a basis for valuation of investment company shares • Selling new shares • Redeeming existing shares Calculation Market Value of Assets - Liabilities Shares Outstanding

  4. Types of Investment Organizations • Unit Trusts • Managed Investment Companies • Open-End • Closed-End • Other investment organizations • Commingled funds • REITs

  5. Open-End and Closed-End Funds: Key Differences Shares Outstanding • Closed-end: no change unless new stock is offered • Open-end: changes when new shares are sold or old shares are redeemed Pricing • Open-end: Net Asset Value(NAV) • Closed-end: Premium or discount to NAV

  6. Investment Policies • Money Market • Fixed Income • Equity • Balance & Income • Asset Allocation • Indexed • Specialized Sector

  7. Costs of Investing in Mutual Funds • Fee Structure • Front-end load • Back-end load • Operating expenses • 12 b-1 charges • distribution costs paid by the fund • Alternative to a load • Fees and performance

  8. Sources of Information on Mutual Funds • Wiesenberger’s Investment Companies • Morningstar • Investment Company Institute • Popular press • Investment services

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