Term
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Definition
- commission or sales charge paid when you purchase shares
- reduce the amount of money invested walk in w/ 1000 on a front-end load the mutual fund pockets 50 and invests 950 |
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Term
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Definition
- exit fee incurred when you sell shares
- about 5-6% for first year and reduces by 1% each year funds are left invested a little better than the fornt end bc it can decrease over time they r investor specific u only pay once |
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Term
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Definition
- Costs incurred by the mutual fund while operating the portfolio (administrative and advisory fees)
- Ranges from 0.2% - 2% of assets managed and deducted periodically from the assets of the fund - managers r ussualy paid based on size - MFs never gaurentee return that is preformance related like in a hedge fund - more anaylist higher expense |
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Term
12 b-1 charges mutual fund fees |
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Definition
- distribution costs paid by the fund
- Alternative to a load, but deducted from assets in the fund - pays for marketing expenses |
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Term
Mutual Fund Fees are... Mutual Fund loads are... |
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Definition
... non investor specific ... investor specific (only incur once) |
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Term
| Liabilies in the NAV equation are |
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Definition
| pertianing to Fees not loads |
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Term
| The rate of return of a mutual fund is the NAV at the end of the period minus NAV at the start of the period plus income and capital gains distributions, as a fraction of NAV at the start of the period |
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Definition
Rate of return = NAV(1) – NAV(0) + Income and Capital Gains
NAV(0)
Ignores loads paid to purchase the fund
Affected by fund’s operating expenses and 12b-1 fees since these charges are periodically deducted from the fund’s assets
è Rate of return of the fund equals the gross portfolio return minus the total expense ratio |
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Term
| if you are a long term investor.... |
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Definition
| u would rather have a higher front end load |
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Term
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Definition
diversified portfolio economies of scale of pooled money highly liquid pro management reduced transaction costs admin and record keeping |
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Term
disadvantages of mutual funds |
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Definition
Disadvantages - Poor performance
- Costs such as loads, 12b-1 fees, and operating expenses
- don't normally beat the market
- riskiness (depends on holdings)
- taxes
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Term
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Definition
- With mutual funds, investors buy shares at NAV and redeem shares at NAV. In contrast, closed-end funds sell a fixed number of shares initially, but after that they do not issue new shares or redeem shares
- Instead, closed-end funds are traded on exchanges. Thus, if you want to sell your shares, you must trade your shares on the market
- Market prices can and often do differ from NAV
- - Why is this puzzling?
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Term
closed-end funds - Ex. A closed-end fund’s NAV is $48 at the beginning of the year and
- $60 at the end of the year. At the beginning of the year it is trading at a 5% premium and at the end it is trading at a 6% discount. The fund has no distributions. What was the return to an investor who bought it at the beginning and sold it at the end of the year?
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Definition
P0= (48 * 1.05) = 50.4 P1= (60*(1-.06) = 56.4 56.4-50.4 / 50.4 = 11.9% |
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Term
Open-End and Closed-
End Funds: Key Differences |
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Definition
- Shares Outstanding
- Closed-end: generally fixed; only changes if new stock is offered
- Open-end: changes each day because investors are continually purchasing new shares and redeeming shares they no longer want to hold
- - How can the amount of purchases and redemptions by investors affect a fund’s holdings and return?
- if they have allot of redemtions they may have to sell securities inorder to pay those people
- fund must keep cash on hand
- Pricing
- Open-end: Always priced at net asset value (NAV)
- Closed-end: Can trade at a premium or discount to NAV
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Term
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Definition
- Allows investors to trade index portfolios like they trade stock. For example, a SPDR is an ETF holding a portfolio matching the S&P 500
- Like closed-end funds because they trade on the market; like open-end funds because they issue and redeem shares at NAV
- Currently account for 2/3 of AMEX trading volume
- Can trade at a small discount or premium to NAV
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Term
| advantages and disadvantages of ETFs |
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Definition
- Advantages
- - trade continuously, unlike mutual funds that quote NAV only once per day and thus can be traded only once per day by an investor
- - lower taxes than mutual funds because most trading occurs between shareholders and thus does not cause the fund to sell securities
- Disadvantages
- - investors have to pay a bid-ask spread
- - must be purchased from a broker for a fee
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Term
Do you think managers of actively managed funds can repeatedly beat the market? Do you think some of them get repeatedly beaten by the market?
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Definition
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Term
| Why do you think people invest in mutual funds, given that on average they underperform? |
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Definition
diversification, low risk, pro management buying a big index mutual fund is a good choice, low cost, low risk, low activity, great for a passive investor |
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Term
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Definition
- lightly regulated
- try to pick up on price discrepencies
- rely heavily on leverage
- limited to very wealthly investors
- time and money requirements
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