Mutual Funds

10 Key excerpts on "Mutual Funds"

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  eBook - ePub

  The Savvy Investor's Guide to Pooled Investments

  Mutual Funds, ETFs, and More

  • H. Kent Baker, Greg Filbeck, Halil Kiymaz(Authors)
  • 2019(Publication Date)
  • Emerald Publishing Limited

    (Publisher)

  Dutch merchant Adriaan van Ketwitch formed the world’s first mutual fund in 1774 by pooling money from a limited number of investors. The fund diversified across European countries and the American colonies through the backing of income from plantations. The subscription to the fund was called “unity creates strength” and was limited to 2,000 units. The fund survived until 1824, but the concept of pooling money to create PIVs continues today. The first mutual fund in the United States, Massachusetts Investors Trust, was created in 1924. The fund grew from $50,000 to $392,000 in assets in one year. It became available to the public in 1928 and later became MFSA Investment Management. In 1940, the United States had 68 Mutual Funds, but this number had grown to 9,356 by 2017, with net assets under management (AUM) of almost $19 trillion.

  The purpose of this chapter is to provide the necessary background to help you decide whether Mutual Funds should be part of your investment portfolio. Although Mutual Funds are extremely popular and investing in them appears straightforward, as a savvy investor, you should continue to educate yourself to stay at the top of your game and to obtain the most from your investments. The following questions and answers should help guide you to meet this challenge involving Mutual Funds.

  1.1. WHAT IS A MUTUAL FUND AND HOW DOES IT WORK?

  A mutual fund is an investment company that pools money from investors to buy securities and assets in financial markets according to the objectives specified in the fund’s prospectus. In finance, a prospectus is a formal legal document that provides details about an investment offering for sale to the public. With a mutual fund, you’re entrusting your savings to professional fund managers. The underlying securities and assets in a mutual fund represent its portfolio. Legally known as an “open-end” fund (OEF) or company, a mutual fund is one of three basic types of investment companies. The other two are “closed-end” funds (CEFs) and unit investment trusts (UITs), which are discussed in Chapters 3 and 4, respectively.

  Mutual Funds give people the sense that they’re investing with the big boys and that they’re really not at a disadvantage entering the stock market. Ron Chernow

  An important characteristic of a mutual fund is its ability to offer new shares to investors. A mutual fund stands ready to sell additional shares to investors and to buy and redeem shares from anyone who wants to sell. When you buy shares, the fund issues them, and then invests the money received. When you sell shares, the fund either uses existing cash or sells some of its assets and uses the cash to redeem your shares. As a result, the number of shares outstanding changes over time, and no limit exists on the number of shares that the fund can issue. Mutual Funds price their shares each business day, typically after the major US exchanges close. The cost of each share is calculated as the fund’s net asset value (NAV) per share, which is computed by dividing the difference between the portfolio’s market value and any fund liabilities by the number of shares outstanding. You buy and sell shares based on a fund’s NAV per share. This price fluctuates based on the value of the securities held by the portfolio at the end of each business day. However, you don’t actually own the securities in which the fund invests; you only own shares in the fund itself.

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  eBook - PDF

  An Introduction to Mutual Funds Worldwide

  • Ray Russell(Author)
  • 2007(Publication Date)
  • Wiley

    (Publisher)

  INTRODUCTION 3 leaving them to the potential ravages of inflation, whether as uninvested cash or as interest-earning ‘savings’. The problem and the challenge is knowing how to select investments that meet our objectives for return and suit our appetite for risk. This is where the second use of the word ‘funds’ comes in. 1.1 COLLECTIVE INVESTMENT Most individuals lack substantial wealth or enough wealth to make the investment of their personal funds directly into stocks and shares a practical and low-risk endeavour. Equally, most people lack the professional expertise and knowledge of economics, business, markets and individual companies to identify the sheep from the goats, or the wheat from the chaff as it were. Then, of course, there’s the time and paperwork associated with keeping track of a personal portfolio, and with keeping an eye on taxation opportunities and obligations, especially tricky if it’s a global portfolio. Mutual Funds offer a solution. They are a form of collective investment . They allow any number of investors to pool their individual investments and thereby participate in a larger and more diversified portfolio of investments than would otherwise be possible. The advantages and commercial benefits of pooling the often modest savings or spare money of a large number of individuals have long been manifest in the form of collective schemes managed 4 AN INTRODUCTION TO Mutual Funds WORLDWIDE centrally by organisations that can provide all the necessary investment and administrative services. The participants in a mutual fund can take advantage of specialised professional management and reduced administration and, depending on the relevant tax regime, obtain some taxation benefits.

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  Investment Management

  • (Author)
  • 2014(Publication Date)
  • Orange Apple

    (Publisher)

  ____________________ WORLD TECHNOLOGIES ____________________ Chapter- 5 Mutual Fund A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests typically in investment securities (stocks, bonds, short-term money market instruments, other Mutual Funds, other securities, and/or commodities such as precious metals). The mutual fund will have a fund manager that trades (buys and sells) the fund's investments in accordance with the fund's investment objective. In the U.S., a fund registered with the Securities and Exchange Commission (SEC) under both SEC and Internal Revenue Service (IRS) rules must distribute nearly all of its net income and net realized gains from the sale of securities (if any) to its investors at least annually. Most funds are overseen by a board of directors or trustees (if the U.S. fund is organized as a trust as they commonly are) which is charged with ensuring the fund is managed appropriately by its investment adviser and other service organizations and vendors, all in the best interests of the fund's investors. Since 1940 in the U.S., with the passage of the Investment Company Act of 1940 (the '40 Act) and the Investment Advisers Act of 1940, there have been three basic types of registered investment companies: open-end funds (or Mutual Funds), unit investment trusts (UITs); and closed-end funds. Other types of funds that have gained in popularity are exchange traded funds (ETFs) and hedge funds, discussed below. Similar types of funds also operate in Canada, however, in the rest of the world, mutual fund is used as a generic term for various types of collective investment vehicles, such as unit trusts, open-ended investment companies (OEICs), unitized insurance funds, undertakings for collective investments in transferable securities (UCITS, pronounced YOU-sits) and SICAVs (pronounced SEE-cavs).

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  Personal Finance

  • Vickie L. Bajtelsmit(Author)
  • 2020(Publication Date)
  • Wiley

    (Publisher)

  The term mutual fund is often used to refer to all types of investment companies, but technically, a mutual fund is a specific type called an open-end investment company, which we explain later. Although the mechanism can differ across funds, the cash flows generated by the securi- ties in the investment pool are later distributed to the investors. As with stock investments, this distribution can take the form of dividends or an increase in the value of investment shares. Investors who purchase shares in Mutual Funds are like other corporate shareholders—they have an equity interest in the pool of assets and a residual claim on the profits, but they have no say in day-to-day decisions about buying and selling the financial assets. Until the enactment of comprehensive securities laws in the 1930s, investors didn’t have a lot of confidence in this type of investment. Today, however, mutual fund shares are consid- ered securities under the legal definition of the word, and shareholders are therefore entitled LEARNING OBJECTIVES TOPICS DEMONSTRATION PROBLEMS 13.2 Explain the advantages and costs of investing in Mutual Funds versus individual securities. 13.2 Mutual Fund Investing • The Advantages of Mutual Fund Investing • The Costs of Mutual Fund Investing • Selecting and Evaluating Mutual Funds 13.3 Identify the advantages and disadvantages of direct and indirect real estate investments. 13.3 Real Estate Investment • Your Home as an Investment • Direct Real Estate Investment • Indirect Real Estate Investment 13.2 Calculating Return on Investment for Income Properties 13.4 Explain why investments in precious metals, gems, collectibles, cryptocurrencies, and derivatives are speculative. 13.4 Speculative Investments • Precious Metals and Gems • Collectibles and Art • Cryptocurrencies • Financial Derivatives 13.3 Estimating Return on Art and Collectibles (continued) 13.1 What Is a Mutual Fund?

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  Investment Theories

  • (Author)
  • 2014(Publication Date)
  • Orange Apple

    (Publisher)

  ____________________ WORLD TECHNOLOGIES ____________________ Chapter- 10 Mutual Fund A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests typically in investment securities (stocks, bonds, short-term money market instruments, other Mutual Funds, other securities, and/or commodities such as precious metals). The mutual fund will have a fund manager that trades (buys and sells) the fund's investments in accordance with the fund's investment objective. In the U.S., a fund registered with the Securities and Exchange Commission (SEC) under both SEC and Internal Revenue Service (IRS) rules must distribute nearly all of its net income and net realized gains from the sale of securities (if any) to its investors at least annually. Most funds are overseen by a board of directors or trustees (if the U.S. fund is organized as a trust as they commonly are) which is charged with ensuring the fund is managed appropriately by its investment adviser and other service organizations and vendors, all in the best interests of the fund's investors. Since 1940 in the U.S., with the passage of the Investment Company Act of 1940 (the '40 Act) and the Investment Advisers Act of 1940, there have been three basic types of registered investment companies: open-end funds (or Mutual Funds), unit investment trusts (UITs); and closed-end funds. Other types of funds that have gained in popularity are exchange traded funds (ETFs) and hedge funds, discussed below. Similar types of funds also operate in Canada, however, in the rest of the world, mutual fund is used as a generic term for various types of collective investment vehicles, such as unit trusts, open-ended investment companies (OEICs), unitized insurance funds, undertakings for collective investments in transferable securities (UCITS, pronounced YOU-sits) and SICAVs (pronounced SEE-cavs).

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  Wiley Pathways Personal Finance

  Managing Your Money and Building Wealth

  • Vickie L. Bajtelsmit, Linda G. Rastelli(Authors)
  • 2012(Publication Date)
  • Wiley

    (Publisher)

  13.1 What Is a Mutual Fund? A mutual fund is technically an open-end investment company, but the term is often applied more broadly to any arrangement in which investors’ funds are pooled and used to purchase securities. Although the mechanism can differ across funds, the cash flows generated by the securities in the pool are later distributed to the investors. Investors who purchase shares in Mutual Funds are like other corporate shareholders: They have no say in the day-to-day decisions about buying and selling securities for the pool, but they have an equity interest in the pool of assets and a residual claim on the profits of the pool. What does a mutual fund investor actually own? One measure of the value of an investor’s claim on mutual fund assets is called the net asset value. This is calculated as assets minus liabilities, per share: Net asset value  (Market value of assets  Market value of liabilities) Number of shares For example, suppose you own one share of a mutual fund that has 5 mil- lion shares outstanding. The fund portfolio is currently worth $100 million, and its liabilities include $2 million owed to investment advisors and $1 million in rent, wages, and other expenses. The per share net asset value is calculated as: Net asset value  ($100,000,000  $3,000,000)/ 5,000,000  $97,000,000/ 5,000,000  $19.40 If the securities that are held in a mutual fund increase in value, the net asset value of the shares of the mutual fund should also increase in value, even though these increases are technically unrealized capital gains. A mutual fund share- holder can capture that gain in value by selling his or her shares of the fund for 13.1 WHAT IS A MUTUAL FUND? 353 a price that reflects the higher net asset value. The objective of fund managers is thus to invest in assets that will continue to grow in value over time.

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  International Funds

  A Practical Guide

  • Catherine Turner(Author)
  • 2004(Publication Date)
  • Butterworth-Heinemann

    (Publisher)

  For a layman’s description of a fund we could do worse than something along the following lines: Definition: A fund is a form of collective investment vehicle , which is managed on behalf of investors and which allows them to pool their assets with the aim of achiev-ing a common investment objective . The types of assets which might be included in a fund’s portfolio are as varied as investors’ imaginations (although regulated funds are subject to some limitations in 6 Principles of Fund Management terms of what they can invest in; we will look at this in Chapter 3). The common underlying investments include: ■ Equities ■ Bonds ■ Convertibles ■ Derivatives ■ Warrants ■ Commodities ■ Real property ■ Deposits and near-cash assets in local and foreign currency ■ Other funds. More specialist or lightly regulated/unregulated funds may hold a much wider variety of assets, some of them relatively illiquid or difficult to value. For example, some – usually those aimed at sophisticated investors or those with specific interests in common – have been used to hold assets such as vintage cars, property ground rents, antiques etc. Each investor has a direct investment in the fund vehicle, which holds the ‘underly-ing’ investments (Figure 1.2). He does not , however, usually have a direct investment in the underlying investments. It is the fund itself which has the direct interest in the underlying investment. Investment via a fund is also therefore sometimes known as ‘indirect investment’. The concept of indirect investment can be stretched somewhat where partnerships are used as fund vehicles, since with a partnership it is possible for tax authorities and others to look through to the individual partners and attribute interests such as tax liabilities/losses directly to them. 1.2 Capital structures Funds may be ‘closed-ended’ or ‘open-ended’.

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  Money, Banking, Financial Markets & Institutions

  • Michael Brandl(Author)
  • 2020(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  We then spend a fair amount of time looking into the wide variety of Mutual Funds that currently exist in our financial markets. We will learn that not all Mutual Funds are the same, especially when it comes to risks and the fees investment companies charge. We finish by reviewing other types of Mutual Funds, including exchange-traded funds, hedge funds, and real estate investment trusts. Along the way, we investigate some of the controversies that exist in these rapidly expanding financial markets. Essentially all of these different types of Mutual Funds are the pooling together of the small amounts of funds from individual savers by an investment company. The investment company turns the funds over to a mutual fund manager, who in turn buys a portfolio of securities. Each of the savers then owns a portion of this portfolio. What type of securities the portfolio manager purchases depends on the goals and structure of the mutual fund. 23-1a Mutual Fund Growth Today, Mutual Funds and other products offered by investment companies are very popular. According to the 2018 Investment Company Fact Book , US investment companies have total net assets of more than $22 trillion, and mutual fund assets make up more than $18 trillion of that total. More than 45% of American households own Mutual Funds; the median mutual fund balance of households owning them is $125,000 compared to $100,000 in 2014. As Figure 23-1 demonstrates, Mutual Funds, or open-ended funds, have grown significantly around the world, not just in the United States. The total net assets at the end of 2017 were more than double what they were ten years earlier. Mutual fund ownership is, however, a relatively recent phenomenon. The mutual fund market started to increase in size ever so slightly in the late 1970s and then increased significantly during the 1980s and 1990s. The growth of Mutual Funds is moderated during the years of eco-nomic recessions.

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  eBook - ePub

  The Forbes / CFA Institute Investment Course

  Timeless Principles for Building Wealth

  • Vahan Janjigian, Stephen M. Horan, Charles Trzcinka(Authors)
  • 2011(Publication Date)
  • Wiley

    (Publisher)

  Mutual Funds offer a number of advantages to investors. They provide small investors with access to professional portfolio management services that would normally be out of their reach, as well as access to a highly diversified investment portfolio. Investing in Mutual Funds can simplify record-keeping and administrative activities. There are many different kinds of Mutual Funds available that employ all kinds of investment strategies, styles, and asset allocations. It is not difficult to find one that suits your goals and needs.

  Mutual Funds are also known as investment companies. The investment company uses the services of a professional portfolio manager to make investments that are consistent with its goals and mandates. When you invest in a mutual fund, you buy shares representing partial ownership of the fund’s securities. As a shareholder, you share in the fund’s gains and losses and pay your part of the fund’s expenses. There are two main fund categories: equities and fixed-income securities. Each category has numerous subcategories. When choosing a fund, focus on the assets the fund holds, the level or risk associated with the fund, and the geographic focus of the fund. You should also consider the fees charged by the fund. A fund with high fees must outperform the market by a wide margin in order to justify its existence.

  In some ways, hedge funds are similar to Mutual Funds. For example, they both pool clients’ funds. However, hedge funds are subject to much less regulation. In addition, only accredited investors may invest in hedge funds. To be accredited, the investor must have a high net worth or income. Hedge funds typically have large minimum investment requirements, and they usually place limitations on when money can be withdrawn.

  Mutual Funds are fine for some people, but there are also many disadvantages associated with them. For example, they are not necessarily tax-efficient, and many actively managed Mutual Funds underperform the market indexes. Some funds have high expense ratios and hold too many securities. Others fail to provide adequate diversification even though there are regulations in place designed to prevent funds from becoming too concentrated. Information about fees, expenses, and performance are readily available in the fund prospectus. With your investment goals and needs in mind, you can make informed decisions about which funds are right for you.

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  Managing Collective Investment Funds

  • Mark St Giles, Ekaterina Alexeeva, Sally Buxton(Authors)
  • 2005(Publication Date)
  • Wiley

    (Publisher)

  All these terms, and their significance, will be explained further in Chapters 2 and 3. Unfortunately there is something of an embarrassment of riches in terms of dif- ferent names used for different forms of collective investment funds in different countries, which aren’t rehearsed here since confusion would abound as a result – suffice it simply to say that probably the most commonly used term is ‘Mutual Funds’. MANAGING COLLECTIVE INVESTMENT FUNDS Anyone thinking of creating a business to market and operate collective invest- ment funds will first have to consider the potential for such a business (existing legal and fiscal framework, economic environment, etc.) as any other business would do. Then they will have to create funds and offer them to potential in- vestors (marketing), invest the money they raise (investment management) and operate both the funds and investors’ holdings in these funds (administration). They will need to monitor both the market and how taxation or other changes may affect competitiveness of products. And they will need to manage and di- rect the business, ensuring that the three core activities of marketing, investment management and administration interact effectively and that a profit is produced for shareholders, who may not continue to support the business otherwise. The chapters of this book broadly follow this pattern. The first four chapters of the book are descriptive, setting out: Why the business is worth entering – Chapter 1. What the key functions, roles and responsibilities are – Chapter 2. xviii Introduction What the main fund structures are, and their implications – Chapter 3. Why regulation is needed and what it covers – Chapter 4. The next two chapters relate to investment management, explaining: What investment management entails, with a comparison of different styles and their implications and a review of the implications of restrictions imposed by investment and borrowing powers – Chapter 5.

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