Sub: Finance Topic: Investment
market where the shares are traded (either on an exchange or in the over-the-countermarket). Supply and demand in the market in which funds are traded determine theprice of the shares of a closed-
end fund. Hence, the fund share’s
price can trade belowor above the NAV. Shares selling below NAV are
said to be “trading at a discount,”
while shares trading above NAV are
“trading at a premium.” Investors who transact in
closed-end fund shares must pay a brokerage commission at the time of purchase andat the time of sale.
Unit Investment Trusts
There is a third type of RIC called a unit investment trust (UIT).This type of RIC is assembled, but not actively managed. A unit investment trust has afinite life and a fixed portfolio of investments.
Costs to Investors.
Investors in RICs bear two types of costs: (1) a shareholder fee, usually
called the sales charge, which is a “one
and (2) an annual fund operatingexpense, usually called the
which covers the fund’s expenses. The largest
expense component of the expense ratio is the management fee, which an annual fee is paidto the asset management company for its services. RICs are available with differentinvestment objectives and investing in different asset classes
stock funds, bond funds, andmoney market funds. There are passively managed and actively managed funds.
are designed to replicate a market index, such as the S&P 500 stock index in the case of common stock. In contrast, with active funds the fund advisor attempts to outperform anindex and other funds by actively trading the fund portfolio.