INVESTMENT ANALYSIS & PORTFOLIO

MANAGEMENT

3/16/2012

Slides by Muhammad Farooq

MUTUAL FUNDS & INVTMENT COMPANIES

3/16/2012

Slides by Muhammad Farooq

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES After this lecture you will be able to:
    

Cite advantages and disadvantages of investing with an investment company rather than buying securities directly. Contrast open-end mutual funds with closed-end funds and unit investment trusts. Define net asset value and measure the rate of return on a mutual fund Classify mutual funds according to investment style Demonstrate the impact of expenses and turnover on mutual fund investment performance.
Slides by Muhammad Farooq

3/16/2012

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Slides by Muhammad Farooq

3/16/2012

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Investment Companies
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INVESTMENTS:

MUTUAL FUNDS & INVTMENT COMPANIES



INVESTMENT COMPANIES

Financial intermediaries that invest the funds of individual investors in securities or other assets

Slides by Muhammad Farooq

3/16/2012

INVESTMENTS:

MUTUAL FUNDS & INVTMENT COMPANIES

 1. 2. 3. 4.

FUNCTIONS OF INVESTMENT COMPANIES Record keeping and Administration Diversification & Divisibility Professional Management Lower Transaction Costs

Slides by Muhammad Farooq

3/16/2012

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Types of Investment Companies

3/16/2012

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES



TYPES OF INVESTMENT COMPANIES

UNIT INVESTMENT TRUSTS

 Money

pooled from many investors that is invested in a portfolio fixed for the life of the fund

MANAGED INVESTMENT COMPANIES

 Open-end

Fund  Closed-end Fund

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Slides by Muhammad Farooq 3/16/2012

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES



OPEN-END FUND
A

fund that issues or redeems its shares at net asset value

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Slides by Muhammad Farooq

3/16/2012

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES



CLOSED-END FUND
A

fund whose shares are traded at prices that can differ from net asset value. Shares may not be redeemed at NAV.

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Slides by Muhammad Farooq

3/16/2012

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES



OTHER INVESTMENT ORGANIZATIONS

Commingled funds Real Estate Investment Trusts (REITs) Hedge Funds UNIT INVESTMENT TRUSTS
Slides by Muhammad Farooq 3/16/2012

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INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Mutual Funds
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INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Mutual Funds
      

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Money Market Funds Equity Funds Specialized Sector Funds Bond Funds Balanced and Income Funds Asset Allocation Funds Index Funds International Funds
Slides by Muhammad Farooq 3/16/2012

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Costs of investing in

Mutual Funds
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INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Costs of Investing in Mutual funds
   

Fee Structure

Management fee and other expenses

Front-end Load


Commission paid at share purchases

Back-end load

Commission paid at share sales

Operating Expenses

Administrative expenses and consultancy fee

Slides by Muhammad Farooq 3/16/2012

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INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Taxation of

Mutual Funds Income

3/16/2012

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Taxation of Mutual Fund Income


Turnover

The ratio of trading activity of a portfolio to the assets of the portfolio Capital Gains and dividends on mutual funds are typically paid out to shareholders once or twice a year. An investor has purchased shares in a mutual fund can receive a capital gain distribution and be taxed on that distribution.
Slides by Muhammad Farooq 3/16/2012

Taxation mechanism


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INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Exchange Traded

Funds
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INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Exchange Traded Funds


Offshoots of mutual funds that allow investors to trade index portfolio.

ETFs trade continuously, where as Mutual fund only can be traded when NAV is calculated only once in a day. ETFs simply sell their shares to other traders and no need to sell any other fund securities as in mutual fund at redemption
Slides by Muhammad Farooq 3/16/2012

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INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Exchange Traded Funds


Sample of ETF Products

Name Ticker Spiders SPY Diamonds DIA Qubes QQQ iShares Russell 2000 IWM VIPER (Total stock market) VTI Index Tracked S&P500 Dow Jones Ind Nasdaq 100 Russell 2000 Wilshire 5000

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ETFs trade Slides by Muhammad Farooq continuously, where as Mutual 3/16/2012 fund

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Special Concepts


Net Asset Value (NAV)

Assets minus liabilities expressed on per share basis

Market value of shares -liabilities NAV= ------------------------------------------------Shares outstanding 120- 5 NAV= ------------ = Rs 23 per share 5

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Slides by Muhammad Farooq

3/16/2012

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Fees and Mutual Fund Returns


Rate of Return

The rate of return on an investment in a mutual fund is measured as the increase or decrease in net asset value plus income distributions such as dividends or distributions of capital gains expressed as a fraction of net asset value at the beginning of the investment period.

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INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

Special Concepts


Rate of Return
NAV1 - NAV0 + Income & Capital Gain distribution ROR= -------------------------------------------------------------------------NAV0 20.10 20 +0.15 +0.05 ROR= --------------------------------- = Rs 0.012 or 1.5% 20

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Slides by Muhammad Farooq

3/16/2012

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

GLOSSERY:
Open-end Fund Investment Company Exchange traded Net Asset Value Hedge Fund Closed-end Fund Soft dollars Load Turnover

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Slides by Muhammad Farooq

3/16/2012

INVESTMENTS: MUTUAL FUNDS & INVTMENT COMPANIES

1.
2. 3. 4. 5. 6. 7. 8.

Helping Websites
www.brill.com www.mfea.com www.funds-sp.com www.morningstar.com www.bloomberg.com/markets/mutualfunds www.etfzone.com www.vanguard.com
Slides by Muhammad Farooq 3/16/2012

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HAVE A NICE WEEK AHEAD

ALLAH HAFIZ
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Slides by Muhammad Farooq 3/16/2012