Ch 17, 18 Mutual Funds

• mutual fund

  An investment fund operated by a company that uses the proceeds from shares and units sold to investors to invest in stocks, bonds, derivatives and other financial securities. ____ offer investors the advantages of diversification and professional management and are sold on a load or no-load basis. ___ shares/ units are redeemable on demand at the fund’s current net asset value per share (NAVPS).
• managed product

  A pool of capital gathered to buy securities according to a specific investment mandate. The pool seeds a fund managed by an investment professional that is paid a management fee to carry out the mandate.
• The mandate of a fund can specify either active management or passive management.
• active management

  Investment management that takes an active, as opposed to a passive, role when managing investments.
• Active fund managers make investment decisions based on their outlook for the markets and securities in which they invest. In almost all cases, ___ intend to outperform the return on a specific benchmark index.
• passive management

  Managers of passively managed funds do not make security selections; they assume only the systematic risk associated with investing in a particular asset class.
• The most common type of passively managed fund is one that attempts to replicate the returns of a market index.
• Managed products can have the following advantages for investors, which may differ depending on the product:

  • Professional management
  • Economies of scale
  • Low cost diversification
  • Liquidity and flexibility
  • Tax benefits
  • Low cost investment options
• What advantage of managed product refers to investors benefit from the experience and specialized knowledge of investment professionals?

  professional management
• What advantage of managed product refers to the asset size of the pooled investment funds allows for negotiation of lower fees and transaction costs?

  economies of scale
• What advantage of managed product refers to Investors with relatively small sums to invest have access to diversification, which they could not otherwise achieve?

  low cost diversification
• What advantage of managed product refers to Some managed products, such as mutual funds, can be bought and sold at their net asset value at any time?

  liquidity and flexibility
• What advantage of managed product refers to Products such as LSVCCs can provide tax benefits, including provincial and federal tax credits?

  Tax benefits
• What advantage of managed product refers to Products such as exchange-traded funds have some of the lowest management costs in the fund universe?

  low cost investment options
• Managed products can also have various disadvantages, depending on the type of product:

  • Lack of transparency
  • Liquidity constraints
  • High costs
  • Volatility of returns
• Fund Facts

  A disclosure document designed to give mutual fund investors key information about a fund. The document is limited to two doubleside pages in length and provides timely information that would be material to an investment decision.
• offering price

  The price that an investor pays to purchase shares in a mutual fund. The ____ includes the charge or load that is levied when the purchase is made.
• net asset value per share (NAVPS)

  For a mutual fund, ____ represents the market value of the fund’s share per unit and is calculated as total assets of a corporation less its liabilities, then divided by the total units outstanding.
• Another term for NAVPS is offering price
• the term mutual fund sales representative to refer to investment advisors who have met the regulatory requirements to sell or advise on mutual funds.
• pre-authorized contribution plan

  A pre-authorized plan to make regular purchases in small amounts.
• Advantages of mutual funds includes:

  • Low cost professional management
  • Diversification
  • Variety of types and transferability of funds
  • Flexibile purchase and redemption option
  • Liquidity
  • Ease of Estate Planning
  • Loan collateral and margin eligibility
  • Various special options such as reinvestment/contribution, regulatory filing, and record-keeping
• What advantage of mutual fund refers to professional management who analyzes the financial market at a low cost?

  Low cost professional management
• What advantage of mutual fund refers to having fund investors have access to a wider range of securities?

  Diversification
• What advantage of mutual fund refers to the many types of mutual funds and also permit investors to transfer between two or more different funds managed by the same sponsor, usually at little or no added fee?

  variety of types and transferability of funds
• What advantage of mutual fund refers to investors who can make a one-time, lump-sum investment or a pre-authorized contribution plan in a mutual fund?

  flexible purchase and redemption option
• What advantage of mutual fund refers to have a continuing right to redeem shares or units for cash at NAVPS?

  Liquidity
• The term estate refers to all the assets owned by a person at the time of his or her death
• Estate planning is the process of arranging ahead of time for the administration and disposal of estate when the time comes.
• Probate is the process of validating the person’s will after death before distributing the estate assets
• What advantage of mutual fund refers to shares in a deceased person’s mutual fund continue to be professionally managed during the probate period until estate assets are distributed?

  ease of estate planning
• What advantage of mutual fund refers to fund shares or units are usually accepted as security for a bank loan or for margin purposes?

  Loan collateral and margin eligibility
• List the various special options that mutual funds consist of other than having an underlying portfolio of securities:

  • reinvestment and contributions
  • regulatory filing
  • record-keeping
• reinvestment and contribution

  Most mutual funds offer the opportunity to compound an investment through the reinvestment of dividends. Other mutual funds allow investors to make monthly contributions in amounts as low as $50 per month. Part of special options for mutual fund
• Regulatory filing

  Sponsors of mutual funds file a variety of reports annually to meet their regulatory disclosure requirements such as AIFs, financial and annual reports. These are easily retrieved through SEDAR. Part of special options for mutual fund
• annual information form (AIF)

  A document in which an issuer is required to disclose information about presently known trends, commitments, events or uncertainties that are reasonably expected to have a material impact on the issuer’s business, financial condition or results of operations. Although investors are typically not provided with the ___, the prospectus must state that it is available on request.
• System for Electronic Document Analysis and Retrieval (SEDAR)

  Facilitates the electronic filing of securities information as required by the securities regulatory agencies in Canada and allows for the public dissemination of information collected in the filing process
• record-keeping

  Other benefits associated with managed products include ____ features that assist with income tax reporting and other accounting requirements. Part of special options for mutual funds
• The following are disadvantages of mutual funds:

  • Costs
  • Short-term unsuitability
  • Systematic risk
  • Tax Complications
• What disadvantage of mutual fund refers to the various charges of mutual funds which may include front-end load?

  Costs