ACTIVITY

MAY 25, 2023

QUESTIONS:

1. Define the following:

A. Investment company G. Back-end sales load
B. Mutual fund H. Load fund
C. Closed-end investment company I. No load fund
D. Net asset value J. Value fund
E. Front-end sales load K. Balanced fund
F. Money market fund L. Growth fund
M. Forward pricing
Investment company
- Is a firm that gathers funds and capital from individuals and institutional investors for the
purpose of investing such funds in a diversified portfolio of stocks, bonds, securities, real estate
and more, with the primary goal of generating profitable returns for the investors. An
investment company may deal with only a specific industry or multiple industries.

Mutual fund
- A type of investment vehicle that pools money from various investors to invest in a diversified
portfolio of securities such as stocks, bonds, and other various assets. Prime example is MFS
Mass Investors Growth Stock C (MIGDX) mutual fund.

Closed-end investment company

-A closed-end investment company, also known as a closed-end fund (CEF), is a type of
investment company that issues a fixed number of shares through an initial public offering (IPO).
The shares are then traded on stock exchanges, just like stocks.

Net asset value

- Net Asset Value (NAV) is a term commonly used in the context of mutual funds and other
investment funds. It represents the per-share value of the fund's assets minus its liabilities. NAV
is calculated by dividing the total net assets of the fund by the number of outstanding shares.

Front-end sales load

- a type of fee that is applied to an investor's initial investment when purchasing shares of a
mutual fund or certain other investment products. It is a percentage of the amount invested and
is deducted upfront at the time of purchase.
Money market fund
- a type of mutual fund that invests in short-term, low-risk, fixed-income securities. It is designed
to provide investors with a relatively stable investment option that offers liquidity and
preservation of capital.

Back-end sales load

- also known as a contingent deferred sales charge (CDSC) or redemption fee, is a fee that is
charged to investors when they sell or redeem shares of a mutual fund. Unlike front-end sales
loads that are deducted at the time of purchase, back-end sales loads are imposed when
investors sell their fund shares.

Load fund
- a type of mutual fund that charges investors sales charges or fees, known as loads, at the time
of purchase or redemption. The purpose of these loads is to compensate financial professionals,
such as brokers or financial advisors, who sell the fund to investors.

No load fund
- a type of mutual fund that does not charge investors any sales load or fees when they
purchase or redeem shares. No-load funds are designed to be sold directly to investors without
the involvement of financial intermediaries such as brokers or financial advisors.

Value fund
- a type of mutual fund or investment strategy that focuses on investing in stocks that are
considered undervalued by the market. Value investors believe that these stocks are trading at
prices lower than their intrinsic value, presenting an opportunity for potential long-term gains.

Balanced fund
- also known as an asset allocation fund, is a type of mutual fund that seeks to provide investors
with a balanced portfolio by investing in a mix of different asset classes, typically stocks, bonds,
and cash equivalents. The primary goal of a balanced fund is to achieve a balance between
growth and income while managing risk.

Growth fund
-a type of mutual fund or investment strategy that focuses on investing in stocks or other
securities of companies with high growth potential. The primary objective of a growth fund is to
achieve capital appreciation by investing in companies that are expected to experience
significant growth in their earnings or market value over time.

Forward pricing
- a pricing mechanism used by mutual funds and other investment funds to determine the
purchase or redemption price of fund shares. It is the practice of pricing shares based on the
next available net asset value (NAV) of the fund rather than the current NAV.

2. Differentiate open-end and closed-end investment companies.

Open-end investment companies

-Offers a wide range of investment strategies and asset classes to investors which allows for a
more diversified investment.
-More liquid as investors can buy and sell shares of open-end funds at any time during trading
hours
-Not limited to a fixed number of shares.
-Shares are bought and sold at their net asset value (NAV), which is calculated at the end of
each trading day

Close-end investment companies

-Offers various investment strategies, but investors must research and select specific funds
based on their objectives.
-Lesser liquidity compared to open-end since shares are traded on exchanges, and
investors need to find buyers or sellers in the market.
- Closed-end funds have a fixed number of shares outstanding
- shares are bought and sold at market prices which is determined by supply and
demand. Therefore, it can be traded in premium or discount

1. -Offers various investment strategies, but investors must research and select specific
funds based on their objectives.

Open-end and closed-end investment companies are two different types of investment
companies with distinct characteristics. Here's a comparison of the two:

Open-End Investment Companies (Mutual Funds):

1. Structure: Open-end investment companies issue and redeem shares directly with
investors at their net asset value (NAV) based on the current market value of the
underlying assets.
2. Pricing: Shares of open-end funds are bought and sold at their NAV, which is
calculated at the end of each trading day.
3. Share Supply: Open-end funds are not limited to a fixed number of shares. They
continuously issue and redeem shares based on investor demand.
 4. Liquidity: Investors can typically buy or sell shares of open-end funds at any time
during trading hours at the current NAV.
5. Fees: Open-end funds may charge various fees, such as sales loads (front-end or
back-end loads), management fees, and other operational expenses.
6. Investment Options: Open-end funds offer a wide range of investment strategies
and asset classes to investors, allowing for diversification.

Closed-End Investment Companies:

2. Structure: Closed-end investment companies issue a fixed number of shares

through an initial public offering (IPO), which are then traded on stock exchanges
like regular stocks.
3. Pricing: Shares of closed-end funds are bought and sold at market prices
determined by supply and demand, which may trade at a premium or discount to
the fund's net asset value.
4. Share Supply: Closed-end funds have a fixed number of shares outstanding. They
do not continuously issue or redeem shares based on investor demand.
5. Liquidity: Closed-end funds may have lower liquidity compared to open-end
funds since shares are traded on exchanges, and investors need to find buyers or
sellers in the market.
6. Fees: Closed-end funds may have lower expense ratios compared to open-end
funds, but they may still charge management fees and other expenses.
7. Investment Options: Closed-end funds offer a range of investment strategies and
asset classes, but investors must research and select specific funds based on their
objectives.

3. Is the term mutual fund synonymous to common trust fund? Explain.

4. How are mutual funds classified? Define each classification.

5. What are the advantages and risks in investing in a mutual fund? Explain each.

6. What are the factors that an investor must look into in order to minimize risk from an
investment in a mutual fund?

Maintain your groupings. Happy working. God bless.