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.