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    Chapter 4 Notes

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    azhar80malik
    UITs are passively managed portfolios that remain fixed once established, while closed-end and open-end funds have managers that can adjust the portfolio. Closed-end funds trade on exchanges but don't redeem shares, while open-end funds, also called mutual funds, offer share redemption at net asset value upon request. Net asset value is calculated by subtracting liabilities from assets and dividing by shares outstanding to determine the buying and selling price of fund shares. Mutual funds provide professional management and diversification beneficial for small investors, but fees reduce returns, and funds limit control over capital gains. Funds are categorized based on investment policies regarding asset types and objectives to serve different investor needs.

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    Chapter 4 Notes

    Uploaded by

    azhar80malik
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    UITs are passively managed portfolios that remain fixed once established, while closed-end and open-end funds have managers that can adjust the portfolio. Closed-end funds trade on exchanges but don't redeem shares, while open-end funds, also called mutual funds, offer share redemption at net asset value upon request. Net asset value is calculated by subtracting liabilities from assets and dividing by shares outstanding to determine the buying and selling price of fund shares. Mutual funds provide professional management and diversification beneficial for small investors, but fees reduce returns, and funds limit control over capital gains. Funds are categorized based on investment policies regarding asset types and objectives to serve different investor needs.

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    UITs are passively managed portfolios that remain fixed once established, while closed-end and open-end funds have managers that can adjust the portfolio. Closed-end funds trade on exchanges but don't redeem shares, while open-end funds, also called mutual funds, offer share redemption at net asset value upon request. Net asset value is calculated by subtracting liabilities from assets and dividing by shares outstanding to determine the buying and selling price of fund shares. Mutual funds provide professional management and diversification beneficial for small investors, but fees reduce returns, and funds limit control over capital gains. Funds are categorized based on investment policies regarding asset types and objectives to serve different investor needs.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    15 views1 page

    Chapter 4 Notes

    Uploaded by

    azhar80malik
    UITs are passively managed portfolios that remain fixed once established, while closed-end and open-end funds have managers that can adjust the portfolio. Closed-end funds trade on exchanges but don't redeem shares, while open-end funds, also called mutual funds, offer share redemption at net asset value upon request. Net asset value is calculated by subtracting liabilities from assets and dividing by shares outstanding to determine the buying and selling price of fund shares. Mutual funds provide professional management and diversification beneficial for small investors, but fees reduce returns, and funds limit control over capital gains. Funds are categorized based on investment policies regarding asset types and objectives to serve different investor needs.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
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    1.

    Unit investment trusts (UITs), closed-end management companies, and open-end


    management companies fall under the regulatory purview of investment companies.
    UITs are passively managed, with their portfolios remaining fixed once established. In
    contrast, managed investment companies, such as closed-end and open-end funds, have
    portfolio managers who can adjust the composition of the portfolio based on market
    conditions and investment objectives. Closed-end funds are traded on exchanges like
    other securities and do not typically redeem shares for investors, whereas open-end
    funds, commonly known as mutual funds, offer redemption of shares at the net asset
    value upon investor request.
    2. Net asset value (NAV) is a key metric used to evaluate the value of a mutual fund or
    investment company. It is calculated by subtracting the fund's liabilities from the market
    value of its assets and then dividing by the total number of shares outstanding. NAV
    represents the per-share value of the fund and is used to determine the buying and
    selling price of fund shares.
    3. Mutual funds provide individual investors with professional portfolio management and
    relieve them of the administrative burdens associated with owning individual securities.
    These funds offer advantages such as lower trading costs and improved diversification,
    particularly beneficial for small-scale investors. However, investors incur management
    fees and other expenses, which can reduce overall returns. Additionally, mutual funds
    limit individual control over the timing of capital gains realizations.
    4. Mutual funds are categorized based on their investment policies, which dictate the types
    of assets they hold and their investment objectives. Common categories include money
    market funds, equity funds (divided by income or growth emphasis or sector
    specialization), bond funds, international funds, balanced funds, asset allocation funds,
    and index funds. Each category serves different investor needs and risk preferences.
    5. Investors in mutual funds bear various costs, including front-end loads (sales charges),
    back-end loads (redemption fees), operating expenses, and 12b-1 charges (recurring fees
    for fund marketing). These costs can erode investment returns over time and should be
    considered when evaluating fund performance and suitability.
    6. Income generated by mutual fund portfolios is typically not taxed at the fund level.
    Instead, if the fund qualifies for pass-through status, income is distributed to investors,
    who then report it on their individual tax returns. This treatment allows investors to
    benefit from tax-deferred growth and potentially lower tax rates on investment income.
    7. Over the past 50 years, the average rate of return of actively managed equity mutual
    funds has been lower than that of passive index funds tracking broad-based indices like
    the S&P 500 or Wilshire 5000. This underperformance can be attributed to factors such
    as the higher costs associated with active management, including research expenses and
    trading costs due to frequent portfolio turnover. Passive index funds offer lower
    expenses and aim to replicate market performance rather than outperform it, often
    resulting in better long-term returns for investors.

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