13 - Investment Companies

sell new shares to investors and redeem outstanding shares on demand at their fair market value

a type of investment pool that solicits funds from wealthy individuals and other investors and invests these funds on their behalf

mutual funds have high regulation while hedge funds are unregulated, mutual funds are available to everyone and hedge funds are only for wealth investors

- provide clients a diversified investment strategy
- low transaction costs (economies of scale)
- expertise of the managers of the fund

returns on the stock market

invest in portfolios of securities with original maturities of more than one year
equity funds - common and preferred stock securities
bond funds - fixed income capital market debt securities
hybrid funds - stock and bond securities

invest in portfolios with original maturities less than 1 year
money market mutual funds - various mixtures of money market securities
tax exempt mmmf - short term debt obligations issued by federally tax exempt entities

specialized investment company that has a fixed supply of outstanding shares but invests in the securities and assets of other firms
- shares are not readed at price represented by net asset value but can be sold at premium or discount

fund that sells a fixed number of redeemable shares that are redeemed on a set termination date
- real estate investment trust

funds which managers buy securities in proportions similiar to those included in a specified major index

little research or management
- less management funds, + returns than actively managed funds

long term mutual funds designed to replicate a particular stock market index
- traded at exchange prices determined by the market
- management fees are lower
- can be traded during the day, sold short, purchased on margin

1. income and dividends on portfolio assets (periodical returns)
2. capital gains on assets bought and sold at a higher price (return for selling)
3. capital appreciation on assets held in the fund (returns for holding)

= (value of the assets under management - liabilities)/number of shares outstanding