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Mutual Funds and Other Investment Companies

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Presentation on theme: "Mutual Funds and Other Investment Companies"— Presentation transcript:

1 Mutual Funds and Other Investment Companies
Chapter 4 Mutual Funds and Other Investment Companies Irwin/McGraw-Hill

2 Services of Investment Companies
Administration & record keeping Diversification & divisibility Professional management Reduced transaction costs Irwin/McGraw-Hill

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 Irwin/McGraw-Hill

4 Types of Investment Organizations
Unit Trusts Managed Investment Companies Open-End Closed-End Other investment organizations Commingled funds REITs Irwin/McGraw-Hill

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 Irwin/McGraw-Hill

6 Investment Policies Money Market Fixed Income Equity Balance & Income
Asset Allocation Indexed Specialized Sector Irwin/McGraw-Hill

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 Irwin/McGraw-Hill

8 A First Look at Fund Performance
Benchmark: Wilshire 5000 Results Most funds underperform Not fair comparison because of costs Adjusted Benchmark: Wilshire 5000 with passive management costs considered The majority of funds still underperform Irwin/McGraw-Hill

9 Consistency of Fund Performance
Do some mutual funds consistently outperform? Evidence suggests that some funds show consistent stronger performance Depends on measurement interval Depends on time period Evidence shows consistent poor performance Irwin/McGraw-Hill

10 Sources of Information on Mutual Funds
Wiesenberger’s Investment Companies Morningstar Investment Company Institute Popular press Investment services Irwin/McGraw-Hill


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