Investment Companies

1
Investment Companies

• Financial intermediaries that invest funds
  collected from individuals in large portfolios of
  stocks, bonds, and other financial assets.

2
Open-end Investment CompaniesMutual Funds

• sharesno limit to the number
• net asset value (NAV)based on the market value
  of the assets in the fund and the percent
  ownership

3
Closed-end funds

• sharesstock limited
• market valuebased on the supply/demand
  relationship for the stock in the marketplace,
  just like ordinary corporate stock

4
Real Estate Investment Trusts (REITs)

• sharesstock, like a closed-end investment
  company
• highly levereddebt ratios above 60 percent
• tax exempt as long as almost all (95 percent)
  income is distributed to shareholders

5
Mutual Funds

• Investment policies
• passivebuy-and-hold strategy
• aggressivecontinually managed
• Typesa fund exists for just about any situation
• money market fundsshort-term
• fixed-income fundsbonds, preferred stock, etc.
• asset allocationstocks, bonds, and cash are
  rebalanced based on market conditions
• sector fundsspecialize in particular industries,
  countries, politics, investment policies, and so
  forth

6
Mutual Funds

• Costsfees
• front-end loadfee when you enter the fund
• back-end loadfee when you exit the fund
• operating expensesmanagement fees
• 12b-1 feesadditional fees hidden as charges for
  advertisement
• Taxationpass-through security, which means the
  investor pays appropriate taxes, not the
  investment company

7
Exchange Trade Funds (ETFs)

• unit investment truststhe portfolio of
  investments is fixed for example, the SP 500
  index or the DJIA
• continuously tradedsimilar to stock