9.21 investments - chapter 4 - Summary

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MUTUAL FUNDS AND OTHER INVESTMENT COMPANIES

KEYWORDS：

investment company

net asset value (NAV)  
 基金资产净值

unit investment trust   单位投资信托基金

open-end fund   开放型基金
 

closed-end fund 
 
封闭型基金

load

hedge fund 对冲基金

12b-1 fees

soft dollars

turnover

exchange-traded funds  交易所交易基金

SUMMARY

1 .
 Unit investment trusts, closed-end management companies, and open-end management companies
 are all classified and regulated as investment companies. Unit investment trusts are essentially unmanaged in the sense that the portfolio, once established, is fixed. Managed investment

companies, in contrast, may change the composition of the portfolio as deemed fit by the portfolio manager. Closed-end funds are traded like other securities; they do not redeem shares for their

investors. Open-end funds will redeem shares for net asset value at the request of the investor.

2.
 Net asset value
 equals the market value of assets held by a fund minus the liabilities of the fund

divided by the shares outstanding.

3. Mutual funds free the individual from many of the administrative burdens of owning individual

securities and offer professional management of the portfolio. They also offer
 
advantages that

are available only to large-scale investors, such as discounted trading costs.
 
On the other hand,

funds are assessed management fees and incur other expenses, which reduce the investor’s rate

of return. Funds also eliminate some of the individual’s control over the timing of capital gains

realizations.

4. Mutual funds are often
 
categorized
 by
 investment policy. Major policy groups include money

market funds; equity funds, which are further grouped according to emphasis on income versus

growth; fixed-income funds; balanced and income funds; asset allocation funds; index funds; and

specialized sector funds. 

5.
 Costs
 of investing in mutual funds include front-end loads, which are sales charges; back-end

loads, which are redemption fees or, more formally, contingent-deferred sales charges; fund operating expenses; and 12b-1 charges, which are recurring fees used to pay for the expenses of marketing the fund to the public.

6.
 Income
 earned on mutual fund portfolios is not taxed at the level of the fund. Instead, as long as

the fund meets certain requirements for pass-through status, the income is treated as being earned

by the investors in the fund.

7. The
 
average rate of return of the average equity mutual fund in the last 35 years has been below

that of a passive index fund holding a portfolio to replicate a broad-based index like the S&P

500 or Wilshire 5000. Some of the reasons for this disappointing record are the costs incurred by

actively managed funds, such as the expense of conducting the research to guide stock- picking

activities, and trading costs due to higher portfolio turnover. The record on the consistency of

fund performance is mixed. In some sample periods, the better-performing funds continue to

perform well in the following periods; in other sample periods they do not.