Term
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Definition
- offer a variety of investment types within one security by investing the customers money in a diversified pool of assets
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Term
| 3 types of Investment Companies |
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Definition
- Management Investment Companies
- face-amount certificate companies
- Unit investment trusts
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Term
| Management Investment Companies |
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Definition
- the most familair type of investment company
- are actively managed by a portfolio manager, who receives a fee for making investment decisions for the fund
- can either be open-ended or closed-ended
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Term
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Definition
- have a fixed number of shares outstanding
- act more like stock than open-ended funds becuase they offer new shares to the public, and after that, the shares are bought and sold in the market
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Term
| Net Asset Value (NAV) of a closed-end fund |
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Definition
- is the parity price were the fund should be trading
- you determine it by dividing the value of the securities held by the fund by the number of shares outstanding
- only closed-end funds can trade below the NAV (at a discount)
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Term
| Public Offering Price (POP) of a closed-end fund |
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Definition
- depends more on the supply and demand than the NAV
- Investors of closed-end funds pay the POP (current market price) plus a brokers commission
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Term
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Definition
- is more commonly known as a mutual fund
- invest in many different securities to provide diversification for investors
- mutual funds are constantly issuing and redeeming shares, which provides liquidity to invstors
- a mutual fund prospectus must always be available
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Term
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Definition
- found by dividing the securities held by the number of shares outstanding, however the NAV is the bid price
- when investors redeem shares of a mutual fund they receive the NAV
- mutual funds can never trade below NAV
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Term
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Definition
- is the NAV plus a sales charge
- if a mutual fund doesnt charge a sales charge it is called a no-load fund
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Term
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Definition
- the key difference between open-end and closed-end funds is the method of capitilization
- an open-end fund is continuous offering of new securities, and a closed-end fund is one-time offering of new securities
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Term
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Definition
- the single most important consideration for customers who invest in investment companies is the fund's investment objectives
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Term
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Definition
- invests in money market instruments (short-term debt securities)
- provide a check writing feature as a way of redeeming shares
- are always no-load (there's no sales charge)
- compute dividends daily and credit them monthly
- no penalty for early redemption
- the safest
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Term
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Definition
- 2nd safest
- primary objective is to provide current revenue (not growth) for investors
- invests most of its assets in a diversified portfolio of debt securities that pay interest and in preferred and common stock of companies that are known to pay consistent dividends in cash
- better investment choices for retirees and investors looking fora a steady flow of cash without much risk
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Term
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Definition
- a combination of a growth fund and an income fund
- invest in common stocks, preferred stocks, long-term bonds, and short-term bonds, aiming to provide both income and capital appreciation while minimizing risk
- dont get hammered when the market is bearish
- underperfrom when the market is bullish
- 3rd safest
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Term
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Definition
- invest most of their assets in common stock of relatively new companies, looking for big increases in stock prices
- ideal for an investor who is looking for long-term capital appreciation potential
- better for younger investors who can take the risk because they have more time to recover their losses
- 4th safest
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Term
| Specialized (sector) Fund |
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Definition
- invests primarily in the securities of a single industry or geographical area
- because they are limitied in their investments, you can assume that they're a little riskier than the average fund
- 5th riskiest
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Term
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Definition
- uses leverage, options, short sales, and other speculative investment strategies
- usually perform better in a bearish market than other funds do
- the riskiest
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Term
| Dealing with discounts and methods of investing |
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Definition
- investors who have the extra funds available may be able to receive a reduces sales charge for larger dollar purchases
- breakpoints and letters of intent are availble to investors of open-ended funds only
- dollar cost averaging and fixed share averaging are most often used for open-end fund purchases but may apply to other investments as well
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Term
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Definition
- when investors spend enough to hit the breakpoint they get a reduced sales charge
- they have no set schedule, so they vary from fund to fund
- they must be disclosed in the prospectus
- are not available to partnerships or investment clubs (several people pooling their money together to receive reduced sales charges)
- are generally available to individual investors, joint accounts with family members, and corporations
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Term
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Definition
- allows an investor to receive a breakpoint (quantity discount) right away with the intial purchase, even if the investor didn't yet deposit enough money to get the breakpoint
- as long as the invstor deposits money within a 13 month period, they will receive the discounted sales charge
- the LOI may be backdated for up to 90 days meaning that it may apply to a previous purchase
- while an investor is under the LOI, shares are held in escrow to pay for the difference in the sales charge, if the investor does not live up to the terms of the obligation, the fund sells the shares held in escrow
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Term
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Definition
- Investors may redeem their shares at any time.
- Even if an investor is under the letter of intent, he or she may still redeem the shares
- the LOI is binding on the fund only
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Term
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Definition
- the investor invests the same dollar amount into the same investment periodically
- beneficial to invstors when the price of a security is fluctuating
- the investor ends up buying more shares when the price is low and buying less shares when the price of the security is high
- results in an average cost per share that is lower than the average price per share if the price of the fund fluctuates
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Term
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Definition
- buying the same number of shares of a security every so often (monthly, quarterly, ect.)
- invstors do not get any savings with this type of plan like they do with dollar cost averaging, but it does enforce investors to be disciplined and consistent with their investing
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Term
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Definition
- a type of investment company that is similar to a zero-coupon bond
- investors make either a lump sum payment or periodic payments in return for alrger future payment
- the issuer of a face amount certificate guarantees payment of the face amount (a fixed sum) to the investor at a present day
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Term
| Unit Invstment Trusts (UITs) |
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Definition
- a registered investment company that purchases a fixed portfolio of income-producing securities (typically bonds) and holds them in trust, which means that a UIT acts as a holding company for its investors
- the company then issues redeemable shares (units) that represent investors' interest in the trust
- any capital gains, interest, and/or dividends are passed on to shareholders at regular intervals
- two types of UITs:
- fixed investment trust
- Participating trust
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Term
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Definition
- invest in a portfolio of debt securities, and the trust terminates when all the bonds in the portfolio mature
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Term
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Definition
- invest in shares of mutual funds
- the mutual funds that the trusts hold dont charge, but the securities held by the underlying mutual funds do
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Term
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Definition
- because the portfolio of securities is fixed, UITs do not employ investment advisors and therefore have no invsetment adviser fee
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Term
| Real Estate Investment Trust (REIT) |
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Definition
- a trust that invsets in real-estate-related projects such as properties, mortgage loans, and construction loans
- they pool the capital of many investors to manage property and/or purchase mortgage loans
- they issue shares to investors representing their interest in the trust
- may be listed on an exchange or over the couunter
- they provide real estate diversification and liquidity for investors
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Term
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Definition
- take positions in real estate properties; income derived from rent collected or profits made when the properties are sold
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Term
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Definition
- pruchase construction loans and mortgages
- the trust receives the interest paid on the loans and in turn passes it on to the owners of the trust (the investors)
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Term
| REITs can avoid being taxed like a corporation if: |
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Definition
- At least 75% of the income comes from real-estate-related activities
- at least 75% of the REITs assets are real estate, government securities, and/or cash
- At least 90% of the net income received is distributed to shareholders (who pay taxes on the income)
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Term
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Definition
- have fixed rates of return that the issuer guarantees
- investors pay money into fixed annuities, and the money is deposited into the insurance companies general account
- after the investor starts receiving payments from the fixed annuity, the payments remain the same for the remainder of the investors life
- because of the guaranteed payout, they are not considered securities and are therefore exempt from SEC registration requirements
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Term
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Definition
- because the payouts associated with a fixed annuity remain the same, they're subject to purchasing power risk (the risk an investment wont keep up with inflation)
- An investor who received payments of $1,000 per month in the 1970s may have been able to survive, however, that amount today may not even pay the grocery bill
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Term
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Definition
- the investors bare the risk of investment risk
- they were devised in an attempt to beat out inflation
- these types of annuities are considered securities and must register with the SEC
- must be sold with a prospectus
- the assumed interest rate (AIR) is a projection of the performance of the securities in the seperate account over the life of the variable annuity contract
- if the securities outperform the AIR then the investor receives higher payouts than expected and vice versa
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Term
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Definition
- type of payment option provides income for the life of the annuitant; however after the annuitant dies the insurance company stops making payments
- the riskiest type of annuity for an investor, becuase if the investor dies earlier than expected, the insurance company gets to keep the leftover annuity money
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Term
| Life Annuity with period certain |
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Definition
- type of payout option that guarantees payment to the annuitant for a minimum number of years
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Term
| Joint Life with last survivor annuity |
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Definition
- type of payment option that guarantees payments over the lives of two individuals
- usually set up for husband and wife
- this has the lowest payouts because it covers the life of two individuals
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