Mutual Funds: Different Types Of Funds

1. MUTUAL FUNDS

2. Indirect investing
• Investing indirectly refers to the buying and
selling of the shares of investment companies
• Instead of buying and selling shares themselves,
inventors can give their money to investment
companies that manage the money for them by
investing in shares and bonds
• An investment company is a financial service
organization that sells shares in itself to the
public and uses the funds to invest in a portfolio
of securities

4. Types of investment companies
Types of investment companies:
1. Managed companies
A. Closed end investment companies
B. Open end investment companies
2. Unmanaged companies
A. Index portfolio

5. Closed end investment companies
• Closed end investment company (closed end
mutual fund) does not sell additional shares of
its own stock after initial public offering
• The shares of a closed-end fund trade in the
secondary markets
• Shares prices are determined by demand and
supply forces in the secondary market

6. Advantages of Close End
• Buying at a discount
Shares of closed end funds sometimes sell at a discount to their underlying NAV,
which provides investors an opportunity to enhance their overall investment
return.
Leverage potential
Closed end fund managers can elect to issue senior securities or borrow money to
leverage their fund's investments to potentially enhance yields and returns to
investors, particularly with fixed income closed end funds.
Stable pool of capital
With a fixed number of shares, closed end funds don't have to keep cash on hand
or sell securities in a declining market to meet shareholder redemptions.
Managers can remain fully invested and invest in securities with longer time
horizons, which may result in higher yields and returns for investors.

7. Open end investment company
• Also known as open end mutual funds,
• Market capitalization of these companies
change constantly as new investors buy
additional shares and some existing
shareholders sell back their shares to the
company
• Mutual funds shares can be purchased either
directly from the company through mail or
telephone Or from a sales agent

8. Net Asset value
• Investors purchase new shares and redeem
existing shares at the net asset value (NAV)
• NAV is computed daily by calculating the total
market value of the investments, subtracting
liabilities and dividing it by the number of
shares outstanding

9. Advantages of mutual funds
• Record keeping
– Company keeps track of capital gains, dividends,
investments
• Diversification and divisibility
– By pooling their money, investment companies
enable investors to hold fractional shares of many
different securities
• Professional management
• Lower transaction costs

10. Advantages of mutual funds
• Record keeping
– Company keeps track of capital gains, dividends,
investments
• Diversification and divisibility
– By pooling their money, investment companies
enable investors to hold fractional shares of many
different securities
• Professional management
• Lower transaction costs