Business, Legal & Accounting Glossary
Mutual funds are a type of investment in several financial instruments. It is referred to as a type of investment which is used to pool money and put in stocks, bonds, securities and other short-term money market tools. A Mutual fund involves a fund manager, who trades the pooled money and also analyzes capital gains or losses. These capital gains and losses are provided to the investors in the form of dividends.
From the year 1940, it is known that there were three types of investment companies in the United States. One is the open-end funds, which were also known as mutual funds; secondly unit investment trusts (UITs) and lastly closed-end funds. Apart from United States, the term mutual fund is used all over the world. For rest of the world mutual funds represent a general term for various types of united investment mediums which includes unit trusts, open-ended investment companies (OEICs), unitized insurance funds, and undertakings for collective investments in transferable securities (UCITS).
The initiation of mutual fund took place in March 21 in year 1924 when Massachusetts Investors Trust presently known as MFS Investment Management was founded. In the year 1925, MIT involved 200 shareholders and a total investment of $392,000 in assets. The growth of mutual funds was however ceased due to stock market crash, which took place in the year 1929. In order to make the mutual fund survive in the financial market several laws were passed. Securities Act of 1933 and the Securities Exchange Act of 1934 were the major acts that were passed to promote mutual funds.
These laws involve a registration process for certain amount of fund with the Securities and Exchange Commission (SEC) and in return provides potential investors details about the funds and securities. All these efforts lead to the proper operation of mutual funds and statistics say there were approximately 270 funds with $48 billion in assets by the end of the 1960’s. First Index Investment Trust was the first retail index fund formed in 1976. Index Investment Trust, lead by John Bogle also contributed to recognizing numerous explanation of the mutual fund industry in his thesis at Princeton University in the year 1951. Index Investment Trust is now known as the Vanguard 500 Index Fund and is recognized as one of the world’s largest mutual funds that include more than $100 billion investment in assets.
A mutual fund is professionally managed, open-ended fund which serves as an investment vehicle that raises money through the sale of shares and invests in various investment vehicles. Because of this, mutual funds benefit from diversification, since investments are spread across many securities and the movement (volatility) of the assets will not move in the same direction.
A mutual fund (or investment company) is a pooled investment vehicle that allows many parties to collectively invest in a professionally managed portfolio of assets. Mutual funds are an especially attractive investment for retail investors for three reasons:
In the United States, mutual funds can be formed in any state as a corporation, trust or limited partnership. They are regulated by the SEC and are subject to corporate, trust or limited partnership law, as appropriate, plus additional requirements under the 1940 Investment Companies Act. To prevent investors from being taxed twice, mutual funds are exempt from federal taxes so long as they satisfy IRS requirements for sources of income and diversification of holdings. They must also distribute substantially all their income and capital gains to shareholders each year. Generally, shareholders are taxed on the income and capital gains distributed to them.
A famous example of a mutual fund is the Magellan Fund, which was launched in 1963. For many years, it had strong performance, actively trading a diversified portfolio of stocks and bonds. In 2005, the fund had $50 billion in assets and hundreds of thousands of investors, most of them retail investors.
A mutual fund’s net asset value (NAV) is calculated as:
where fund liabilities might be unpaid expenses, such as directors’ compensation or management fees, which are paid out of the fund’s portfolio. NAV represents the liquidation value of one share of the mutual fund. If an investor holds 10,000 shares of a mutual fund whose NAV is $26.14, the shares represent an ownership interest in a fraction of the fund worth
10,000 × $26.14 = $261,400
There are two types of mutual funds: open-end funds and closed-end funds. With an open-end fund, investors who want to buy or sell shares do so directly with the fund, which continually issues or redeems shares as needed. On any given trading day, orders to buy or sell shares placed prior to the close of trading settle at that day’s NAV, calculated at the close of trading. Orders placed after the close of trading settle at the next trading day’s NAV. For example, if an investor places an order to buy 1,000 shares at 11:00AM on a Tuesday, and the fund’s NAV for Tuesday is calculated at 4:30PM as $85.26, he pays $85,260 for the shares. If he buys an additional 100 shares at 8:00PM on Friday, that transaction will settle based on the NAV calculated at 4:30PM on Monday.
Closed-end funds are more like industrial corporations. They issue a fixed number of shares, and these trade on a stock exchange. Investors who want to buy or sell shares must do so on the exchange. Share prices are driven by supply and demand, and they often stray from a fund’s NAV. More often than not, they trade at a discount of several percent to the NAV. This apparent violation of the law of one price is a recurring topic of scholarly research.
Some closed-end funds have their own management teams. Others hire an investment management firm to manage their portfolios. Most open-end funds hire an investment management firm. This is legally how the relationship works, but the reality is a bit like a tail wagging its dog. Most open-end funds are launched by an investment management firm. The investment management firm selects the initial board of directors (or trustees) who then hire the investment management firm to manage the portfolio. It is theoretically possible that investors might later elect a new board that hires a different investment management firm to manage the portfolio, but this never happens. Corporate governance for mutual funds is as dysfunctional as it is for industrial corporations, so shareholders have little say in management affairs.
When an investment management firm launches a mutual fund, it generally provides more ongoing services to the fund than just investment management. It may provide (or otherwise arrange for) fund administration, marketing, fund accounting, custody, transfer agency and other services. Such investment managers are called fund management companies. They tend to launch entire families of funds (or fund families) offering funds invested with a variety of asset classes or investment styles. The Magellan Fund is managed by Fidelity Investments, but it is just one fund in an extensive family. Fidelity’s offerings include funds that invest in stocks, bonds and money market instruments. It offers foreign and domestic funds. Some are actively managed. Others are passively managed. Some invest in tax-exempt municipal securities, and the tax benefits flow through to investors as tax-exempt distributions. All Fidelity’s funds have pretty much the same people on their boards of directors. None of the funds have employees. Fidelity does everything.
Mutual fund investors incur a number of expenses. Most are paid out of fund assets, so investors pay them indirectly. One of these is the management fee paid by the fund to the management company. This is a fixed per cent of the fund value paid in instalments each year. Management fees vary considerably according to the type of fund and the management company. For an actively managed equity fund, they typically are 0.8% to 1.2%. For a passively managed index fund, they might be 0.1% to 0.2%. Management fees for actively managed bond funds are usually 0.4% to 1.0%. Specialized funds; say those that invest in a specific emerging market, may have proportionately higher management fees.
Other expenses paid out of fund assets include directors’ compensation and transaction costs, including broker commissions, bid-ask spreads and impact costs.
For some funds, getting in or out can be an investor’s biggest expense. This generally isn’t the case with closed-end funds, where an investor can buy or sell shares for the price of a broker commission. With open-end funds, things are more complicated.
Open-end funds may be sold directly by the management company, or they may be sold by an unaffiliated distribution company, such as a bank or broker. Funds sold through an unaffiliated distribution company often charge sales loads (or loads). Most common are front-end loads. When an investor purchases shares, a fixed fraction of the investment is subtracted to compensate the party who sold the fund. Only the balance is invested in the fund. Historically, front-end loads of 7% or 8% were common, but they have come down since the advent of 12b-1 fees (explained below). The share price of a front-end load fund may be quoted as the NAV or it may be quoted as the offering price, which includes the load.
A back-end load is a sales load that is subtracted from the proceeds when an investor sells shares in a fund. These usually decline with the length of time shares are held. A fund might have a back-end load of 5% for shares sold within a year, 4% for within the next year, and so forth, ending with a 0% load after five years. Back-end loads are also called contingent deferred sales charges (CDSC)
In 1980, the SEC adopted Rule 12b-1, which allows funds to pay marketing and sales expenses directly out of fund assets, just like management fees. Such fees have come to be known as 12b-1 fees. While they may be used to pay for advertising or to mail prospectuses to potential investors, 12b-1 fees are primarily used as a means of compensating brokers or other independent distributors of a mutual fund, either in lieu of or in addition to a load. A common arrangement is for a fund to charge no load, but the management company advances a commission to the broker. The fund company then recoups the advanced commission through a 12b-1 fee. The fund also has a decreasing back-end load to cover the management company in case the investor sells her shares before the entire commission has been recouped.
12b-1 fees complicated fund expenses and lead to some controversy. Traditionally, a no-load fund was a fund sold directly by the management company. With 12b-1 fees, broker-distributed funds were soon being advertised as no-load, disguising the fact that they charged hefty 12b-1 fees. Some funds sold to unsophisticated investors were so laden with loads, 12b-1 fees, management fees and transaction costs as to make them little more than legalized robbery.
The SEC responded by tightening rules. Since 1988, funds have been required to disclose all loads and fees in tables near the front of the prospectus. Since 1993, funds charging more than a 0.25% 12b-1 fee have been prohibited from advertising themselves as no-load. Also, in 1995, the National Association of Securities Dealers has limited the commissions funds can pay.
While mutual funds are mostly run by a management company, the management company typically appoints a single employee to have final say on what the fund does or does not invest in. These fund managers usually come from the best business schools and spend a number of years as analysts, researching stocks for the fund company, before being promoted to fund manager. Some fund managers are fortunate enough (or have sufficient “skill”, if you reject the efficient market hypothesis) that their fund performs exceptionally well. Such funds gain notoriety, and may be aggressively advertised by the management company. Their managers can achieve almost celebrity status. During the 1980s, Fidelity investments grew to become the largest fund company in the world, based on the success of Magellan and the celebrity status of its manager at the time, Peter Lynch.
Famous funds and celebrity managers posed a problem for the industry. Investors in different distribution channels might all be interested in a particular successful fund, but its fee or load structure might limit it to just certain channels. For example, a broker might have a client who hears about and wants to invest in a well-known no-load fund. Since the no-load fund would pay him no load or other commission, the broker will likely steer her towards some other fund that charged a load or 12b-1 fee. This can cause confusion for investors and missed sales opportunities for fund companies.
The SEC addressed this problem in 1995 with Rule 18f-3. This allows an open-end mutual fund to issue different classes of shares having different fees and loads. One class might have a load and be sold through brokers. Another might have a high 12b-1 fee and be sold through financial planners. A third class might have a lower 12b-1 fee and be distributed to defined contribution pension plans.
An alternative to having multiple classes of shares is a hub-and-spoke (or master/feeder) arrangement. Here, there is a single central portfolio, called the hub or master. This needn’t be a mutual fund. It could just be a limited partnership. Multiple open-end mutual funds then invest in the hub, holding it as their sole investment. Accordingly, the mutual funds hold identical investments, but they can offer investors differing fee and load structures.
The origins of mutual funds[1] can be traced to early vehicles for pooling of risk, including life annuities and tontins. When privately issued, such commitments needed to be backed by an asset or a portfolio of assets. In this sense, the instruments were collective investments.
In 1774, Amsterdam broker Abraham van Ketwich sold subscriptions in a pooled investment vehicle called Endragt Maakt Magt. Proceeds were invested in debt instruments. Investors were promised a 4% return plus additional distributions if performance was good. Also, based on a lottery, some shares would be retired at a premium before the stated 25-year maturity. Shares traded on the Amsterdam stock exchange, making this the first known example of a closed-end mutual fund. Other similar funds were subsequently offered to Amsterdam investors.
Starting in the mid-1800s, pooled investment vehicles were structured as trusts. The first was the Société Civile Genèvoise d’Emploi de Fonds, launched in Switzerland in 1849. Others followed, in England, Scotland and the United States. Typically, depending on jurisdiction and the specific legal structure of a fund, a trust structure meant holdings could not be changed, and investors (beneficiaries of the trust) had no means of increasing or decreasing their holdings prior to the trust’s set liquidation date. Like a modern mutual fund, income was generally distributed to investors as it was earned.
Recognizably modern closed-end and open-end mutual funds first appeared in the United States in the 1920s, investing almost exclusively in equities. By the time of the 1929 stock market crash, closed-end funds had some $3 billion in assets with the average fund trading at a 47% premium. Open-end funds lagged with just $140 million in assets. At the time, the total capitalization of the US equities market was about $87 billion.
The crash was devastating for the US stock market, but it was doubly so for closed-end funds. Many had engaged in illegal activities (or activities that would subsequently be made illegal) or employed leverage to boost returns. Not only did their portfolios plummet with the stock market, but leverage magnified the drop. Compounding this, the average premium on closed-end funds plummeted from 47% to a discount of 25%. The fallout was so bad, not a single closed-end fund was launched in the United States through the 1930s.
Open-end funds faired better. Their portfolios fell with the market, but they had avoided illiquid or questionable investments due to their need to buy or sell fund shares for investors on a daily basis. They had generally avoided leverage for the same reason. Equity investing languished for many years following the 1929 crash, but open-end funds attracted more investors than closed-end funds. In 1943, open-end funds’ assets exceeded closed-end funds’ assets for the first time, and they have done so ever since.
Another consequence of the 1929 crash was depression-era legislation. The 1933 Securities Act focused on primary markets, ensuring disclosure of pertinent information relating to publicly offered securities. The 1934 Securities Exchange Act focused on secondary markets, ensuring that exchanges, brokers and dealers act in the best interests of investors. The 1940 Investment Company Act was a compromise between the mutual fund industry and the SEC that explicitly regulates mutual funds. The 1940 Investment Advisers Act regulates mutual fund investment managers other than banks..
Mutual funds traditionally invested in equities and, to a lesser extent, bonds. When interest rates skyrocketed in the early 1980s, money market funds became popular, fueling rapid growth in the mutual fund industry. Today, money market funds still represent a significant portion of mutual fund assets, but fund types have proliferated to take advantage of financial innovation and globalization.
Pooled investment vehicles exist in nations around the world. The United Kingdom’s unit investment trusts differ in significant ways from mutual funds. Pooled investment vehicles in France are similar to mutual funds, and theirs is a large market. Europe’s 1985 Undertakings for Collective Investment in Transferable Securities Directive (UCITS) established rules for pooled investment vehicles. Funds established in accordance with these rules can be sold across today’s EU subject to local tax and marketing laws.
Luxembourg and Dublin have capitalized on this directive, establishing themselves as centres for administering EU-wide mutual funds and other pooled investment vehicles.
Outside Europe and the United States, there are active mutual fund markets in Canada, Australia and parts of Asia and South America, including Hong Kong, Japan and Brazil.
A mutual fund enables investors to pool their money and place it under professional investment management. The portfolio manager trades the fund’s underlying securities, realizing a gain or loss, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. There are more mutual funds than there are individual stocks.
The central idea of a mutual fund is to enable investors to pool their money and place it under professional investment management. The manager makes the trades, realizing a gain or loss, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors.
Most mutual funds are open-end funds. This means that at the end of every day, the investment management company sponsoring the fund issues new shares to investors and buys back shares from investors wishing to leave the fund. A mutual fund can also be a closed-end fund. The sponsor of a closed-end fund registers and issues a fixed number of shares at the initial offering, similar to a common stock. Investors then can buy or sell these shares through a stock exchange. The sponsor does not redeem or issue shares after a closed-end fund is launched, so the investor must trade them through a broker.
Mutual funds can invest in many different kinds of securities. The most common are cash, stock, and bonds, but there are hundreds of sub-categories. Stock funds, for instance, can invest primarily in the shares of a particular industry, such as high technology or utilities. These are known as sector funds. Bond funds can vary according to risk (high yield or junk bonds, investment-grade corporate bonds), type of issuers (government agencies, corporations, or municipalities), or maturity of the bonds (short or long term). Both stock and bond funds can invest in primarily US securities (domestic funds), both US and foreign securities (global funds), or primarily foreign securities (international funds). By law, mutual funds cannot invest in commodities and their derivatives or in real estate. (However, there do exist real estate investment trusts, or REITs, which invest solely in real estate or mortgages, and mutual funds are allowed to hold shares in REITs.) A mutual fund may restrict itself in other ways. These restrictions, permissions, and policies are found in the prospectus, which every open-end mutual fund must make available to a potential investor before accepting his or her money.
Most mutual funds’ investment portfolios are continually adjusted under the supervision of a professional manager, who forecasts the future performance of investments appropriate for the fund and chooses the ones which he or she believes will most closely match the fund’s stated investment objective. This is called active management, in contrast to indexing, in which a fund’s assets are managed to closely approximate the performance of a particular published index. Because the composition of an index changes less frequently than the condition of the market, an index fund manager makes fewer trades, on average, than does an active fund manager. For this reason, index funds generally have lower expenses than actively-managed funds, and typically incur fewer capital gains which must be passed on to shareholders.
Mutual funds are corporations under US law, but they are subject to a special set of regulatory, accounting, and tax rules. Unlike most other types of corporations, they are not taxed on their income as long as they distribute substantially all of it to their shareholders. Also, the type of income they earn is often unchanged as it passes through to the shareholders. Mutual fund distributions of tax-free municipal-bond income are also tax-free to the shareholder. Taxable distributions can either be ordinary income or capital gains, depending on how the fund earned it.
You can buy many mutual funds directly from the fund sponsor. These are called “no-load” funds because the issuer does not charge a sales commission. Some discount brokers will sell no-load funds, some for a flat transaction fee, some for no fee at all. Load funds are sold through intermediaries such as brokers, financial planners, and other types of registered representatives who charge a commission for their services.
Picking a mutual fund from among the thousands offered is not easy. The following is just a rough guide, with some common pitfalls.
In September 2003, the US mutual fund industry was beset by a scandal in which major fund companies permitted and facilitated late trading and market timing.
Most mutual funds are open-end funds. This means that at the end of every day, the investment management company sponsoring the fund issues new shares to investors and buys back shares from investors wishing to leave the fund. A mutual fund can also be a closed-end fund. The sponsor of a closed-end fund registers and issues a fixed number of shares at the initial offering, similar to common stock. Investors then can buy or sell these shares through a stock exchange. The sponsor does not redeem or issue shares after a closed-end fund is launched, so the investor must trade them through a broker.
A new innovation, the exchange-traded fund (ETF) combines characteristics of both open and closed-end mutual funds. An ETF usually tracks a stock index, like an index fund, but can be redeemed on demand for its underlying holdings, eliminating the discounts and premiums that are common with closed-end funds and forcing prices to remain very close to the net asset value (NAV). ETFs are traded throughout the day on a stock exchange, just like closed-end funds.
The net asset value, or NAV, is a fund’s value of its holdings, usually expressed as a per-share amount. For most funds, the NAV is determined daily, after the close of trading on some specified financial exchange, but some funds update their NAV multiple times during the trading day. Open-end funds sell and redeem their shares at the NAV, and so only process orders after the NAV is determined. Closed-end funds may trade at a higher or lower price than their NAV; this is known as a premium or discount, respectively. If a fund is divided into multiple classes of shares, each class will typically have its own NAV, reflecting differences in fees and expenses paid by the different classes.
Some mutual funds own securities which are not regularly traded on any formal exchange. These may be shares in very small or bankrupt companies; they may be derivatives, or they may be private investments in unregistered financial instruments (such as stock in a non-public company). In the absence of a public market for these securities, it is the responsibility of the fund manager to form an estimate their value when computing the NAV. How much of a fund’s assets may be invested in such securities is stated in the fund’s prospectus.
Many mutual funds divide their assets up among multiple classes of shares. All of the assets of each class are effectively pooled for the purposes of investment management, but classes typically differ in the fees and expenses paid out of the fund’s assets. These differences are supposed to reflect different costs involved in servicing investors in various classes; for example, one class may be sold through brokers with a front-end load, and another class may be sold directly to the public with no load but a “12b-1 fee” included in the class’s expenses. Still, a third-class might have a minimum investment of $10,000,000 and only be open to financial institutions (a so-called “institutional” class). In some cases, by aggregating regular investments by many individuals, a retirement plan (such as a 401(k) plan) may qualify to purchase “institutional” shares (and gain the benefit of their typically-lower expense ratios) even though no members of the plan would qualify individually.
Turnover is a measure of the amount of securities that are bought and sold, usually in a year, and usually expressed as a percentage of net asset value. It shows how actively managed the fund is.
A caveat is that this value is sometimes calculated as the value of all transactions (buying, selling) divided by 2; i.e., the fund counts one security sold and another one bought as one “transaction”. This makes the turnover look half as high as would be according to the standard measure.
Turnover generally has tax consequences for a fund, which are passed through to investors. In particular, when selling an investment from its portfolio, a fund may realize a capital gain, which will ultimately be distributed to investors as taxable income. The very process of buying and selling securities also has its own costs, such as brokerage commissions, which are borne by the fund’s shareholders.
The Dalbar Inc. consultancy studied mutual fund stock returns over the period from 1984 to 2000. Dalbar found that the average stock fund returned 14 per cent; during that same period, the typical mutual fund investor had a 5.3 per cent return. This finding has made both “personal turnover” (buying and selling mutual funds) and “professional turnover” (buying mutual funds with a turnover above perhaps 5%) unattractive to some people.
A front-end load or sales charge is a commission paid to a broker by a mutual fund when shares are purchased, taken as a percentage of funds invested. The value of the investment is reduced by the amount of the load. Some funds have a deferred sales charge or back-end load which is paid to the broker out of the proceeds when shares are redeemed. (This is distinct from a redemption fee, which is also paid out of proceeds but is kept by the fund. Many funds charge redemption fees when shares are sold a short time after they are purchased, to discourage investors from market timing.) Load funds are sold through financial intermediaries such as brokers, financial planners, and other types of registered representatives who charge a commission for their services.
It is possible to buy many mutual funds directly from the fund sponsor, without paying a sales charge. These are called no-load funds. Some discount brokers will sell no-load funds, sometimes for a flat transaction fee or even no fee at all. (This does not necessarily mean that the broker is not compensated for the transaction; in such cases, the fund may pay brokers’ commissions out of “distribution and marketing” expenses rather than a specific sales charge.)
Mutual funds can invest in many different kinds of securities. The most common are cash, stock, and bonds, but there are hundreds of sub-categories. Stock funds, for instance, can invest primarily in the shares of a particular industry, such as high technology or utilities. These are known as sector funds. Bond funds can vary according to risk (high yield or junk bonds, investment-grade corporate bonds), type of issuers (government agencies, corporations, or municipalities), or maturity of the bonds (short or long term). Both stock and bond funds can invest in primarily US securities (domestic funds), both US and foreign securities (global funds), or primarily foreign securities (international funds). By law, mutual funds cannot invest in commodities and their derivatives or in real estate. (However, there do exist real estate investment trusts, or REITs, which invest solely in real estate or mortgages, and mutual funds are allowed to hold shares in REITs.) A mutual fund may restrict itself in other ways. These restrictions, permissions, and policies are found in the prospectus, which every open-end mutual fund must make available to a potential investor before accepting his or her money.
Most mutual funds’ investment portfolios are continually adjusted under the supervision of a professional manager, who forecasts the future performance of investments appropriate for the fund and chooses the ones which he or she believes will most closely match the fund’s stated investment objective. This is called active management, in contrast to indexing, in which a fund’s assets are managed to closely approximate the performance of a particular published index. Because the composition of an index changes less frequently than the condition of the market, an index fund manager makes fewer trades, on average, than does an active fund manager. For this reason, index funds generally have lower expenses than actively-managed funds, and typically incur fewer capital gains which must be passed on to shareholders. The majority of actively managed funds usually only match the performance of the index fund, but since they have higher costs they then underperform the index funds. Three-fourths of all mutual funds underperform the S and P 500 index. This means the majority of the professional managers can’t execute a better stock-picking strategy than simply buying the 500 S&P; companies equally. For this reason, many advisors strongly suggest avoiding mutual funds.
Mutual funds are corporations under US law, but they are subject to a special set of regulatory, accounting, and tax rules. Unlike most other types of corporations, they are not taxed on their income as long as they distribute substantially all of it to their shareholders. Also, the type of income they earn is often unchanged as it passes through to the shareholders. Mutual fund distributions of tax-free municipal-bond income are also tax-free to the shareholder. Taxable distributions can either be ordinary income or capital gains, depending on how the fund earned it.
Picking a mutual fund from among the thousands offered is not easy. The following is just a rough guide, with some common pitfalls.
In September 2003, the US mutual fund industry was beset by a scandal in which major fund companies permitted and facilitated “late trading” and “market timing”.
In the United Kingdom the term “mutual fund” may be confusing due to the existence of building societies and mutual life companies which in law are owned by their members and which have no shareholders to distribute profits to and consequently are referred to as “mutuals”. Collectively managed funds are referred to by type, and the following are the principal ones are available:
investment trusts which are themselves quoted companies, often with a fixed life. The quoted price of the company may trade at a discount (lower) or premium (higher) than the value of the investments it holds at any point in time, giving rise to more volatility and risk as well as opportunities. Investment trusts may also be split into different types of shares to appeal to different types of investor. These are known as split capital trusts.
Unit Trusts are traditional arrangements set up as a trust rather than a company and are open-ended. The fund is divided into units rather than shares that build in trading and management costs through the cancelling of units meet management charges and by way of a dual pricing policy of units to meet trading costs. Units have a bid (buying) and offer (selling) price at a given time and the difference is known as the bid-offer spread.
OEICs (pronounced “OIKS”) is an acronym for “Open Ended Investment Companies” which a rapidly displacing Unit Trusts which operate under, what is considered to be, archaic rules. Additionally, OEICs are easily marketed overseas and are seen as a way of developing the collectively managed fund market. A major difference is that OEICs have shares (but unlike Investment Trusts they reflect asset value like the units in a unit trust) and these are traded with a single price (any initial charges are levied explicitly by reducing capital).
ICVCs (Investment Companies with Variable Capital) an alternative name for OEICs.
Tax favoured products such as Pensions or Individual Savings Accounts may include any of the above, although separate Pension funds and (subject to involved differences) Life Insurance funds exist with their own legislative control and tax treatment.
We suggested that the client invest in a mutual fund because he mentioned diversification being an important consideration for himself.
The annual board meeting focuses on reviewing the status of the company’s investments in various stocks, bonds, and mutual funds.
The stock broker suggested the couple invest in a mutual fund which was managed by top brokers and this would limit the amount of risk that their investment was exposed to while increasing their investment.
Bond fund
Capital gains distribution
Commodities fund
Index fund
Gold fund
Growth fund
Load fund
No load fund
Managed fund
Money market fund
Mutual fund company
International fund
Sector fund
Tax managed fund
Value fund
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This glossary post was last updated: 22nd November, 2021 | 0 Views.