Topic_4 = Mutual_Funds_and_Investment_Companies

These flashcards cover key concepts and terms related to mutual funds and investment companies as outlined in the lecture notes.

What are investment companies?

Financial intermediaries that collect funds from individual investors and invest those funds in a potentially wide range of securities.

What is the purpose of investment companies?

To provide record keeping, diversification, professional management, and lower transaction costs for investors.

What does NAV stand for in investments?

Net Asset Value, which is the value of each share in an investment company.

What is an open-end fund?

A type of investment company that issues or redeems shares at its NAV.

What is a closed-end fund?

A type of investment company where shares cannot be redeemed but are traded at varying prices on the stock exchange.

What are unit investment trusts?

Unmanaged investment companies with a fixed portfolio for the life of the fund, investing in relatively uniform types of assets.

What is a hedge fund?

A private partnership that forms a speculative investment pool and is exempt from many SEC regulations.

What distinguishes ETFs from mutual funds?

ETFs can be traded any time of the day, unlike mutual funds which are traded at the end of the day after NAV is calculated.

What is the typical cost range of mutual fund fees?

Typically between 0.5% to 2% of assets.

What are 12b-1 charges?

Annual fees charged by mutual funds to cover marketing and distribution costs.

What does liquidity mean in the context of mutual funds?

The ability to redeem shares on demand.

What are the two main types of investment strategies for mutual funds?

Active management and passive management.

What is an example of a fixed-income security?

Bonds.

How do international funds differ from global funds?

International funds invest only in foreign countries, while global funds invest in all countries including the U.S.

What are the components of the formula for calculating mutual fund return?

Return is calculated as (End NAV - Start NAV + Income) / Start NAV.

In mutual fund contexts, what is a 'load'?

A sales commission charged on mutual fund purchases.

What does it mean if a mutual fund has a high turnover rate?

A high frequency of buying and selling securities, which can have tax implications.

What is the typical structure of fees for hedge funds?

Fixed percentage of assets plus an incentive fee based on gains above a certain threshold.

What are specialized sector funds?

Mutual funds that concentrate investments in a specific industry or sector.

What is a key feature of money market funds?

They usually keep their NAV fixed at $1 and offer check-writing features.

What is price appreciation in mutual funds?

An increase in the value of the fund's assets.

What is a capital gain distribution?

The distribution of profit realized from the sale of securities within the mutual fund portfolio.

What advantage do ETFs have over traditional mutual funds?

ETFs typically have lower costs and can be sold short or purchased on margin.

What is the main purpose of real estate investment trusts (REITs)?

To invest in real estate properties or mortgage loans.

What is a critical factor affecting NAV when shares are redeemed from an open-end mutual fund?

The NAV typically decreases when shares are redeemed because there are fewer shares outstanding.

What does the term 'investment strategy' refer to?

A plan for selecting investments that will meet specific financial goals and objectives.

What happens to NAV when there is a capital gain distribution?

NAV may increase due to capital gains being realized as profits in the fund.