Mutual Funds - Finance - Lecture Slides, Slides of Finance

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Mutual Funds, Segregated Fund and

Hedge Funds

What are they and

how do they work?

Important Chapter Terms

• Fund
• Mutual fund
• Hedge fund
• Pension fund
• RRSP
• RESP
• Wealth management
• Clone fund
• Load fund
• No-load fund
  • Bond funds
  • Equity funds
  • Balanced funds
  • RRSP-eligible
  • Marked-to-market
  • NAVPS
  • Open-end mutual fund
  • Closed-end mutual fund
  • REIT
  • MER

Important Terms

• Mutual fund
• MER (management

expense ratio)

• NAVPS (net asset value

per share)

• Open-end fund
• Closed-end Fund
• Clone funds
  • Marking to Market
  • Load fund
  • Soft dollars

Important Terms Defined

Clone Funds – mutual funds that mimic the cash flows

of a portfolio of foreign stocks using

foreign equity index futures and

domestic bonds.

NOTE: since the removal of the foreign content limits

on RRSPs and RPPs, clone funds are

now being wound done here in Canada

Important Terms Defined

Load Fund – a mutual fund with a sales

commission that has to be paid by

the investor upon either the

purchase or the sale of the fund

units.

Important Terms Defined

Soft dollars – a service seller uses gains from an overpriced service to give the service buyer’s investment dealer a free or underpriced service.

Here, for example, the investment fund manager (who is also an investment dealer) uses mutual fund revenue to purchase advisory, data, or other services in return for the seller’s commitment of the services to divert a certain volume of brokerage transactions to the investment fund manager.

Who Can Sell Mutual Funds?

• The organization that markets (sells) mutual funds must be licensed in the province where it offers these products.
• In addition, the person working for the licensed organization must also be licensed under either: - MFDA (Mutual Fund Dealers Association) - IDA (Investment Dealers Association)
• In order to qualify for licensing, the individual must complete an accredited course of studies, have completed a supervised 90 day training program and have satisfied the accrediting body of their personal integrity through a thorough background check. For example: - the MFDA will expect you to have completed the Canadian Investment Funds Course through the Investment Funds Institute of Canada, or the Investment Funds in Canada Course through the Institute of Canadian Bankers or the Canadian Securities Course through the Canadian Securities Institute.

What is a Mutual Fund?

• A financial organization that accepts funds from hundreds, if not, thousands of investors, pools these funds and invests them in bonds, stocks, real estate, precious metals or other investments.

Mutual Fund

What is a Mutual Fund?

• A mutual fund is a financial organization that accepts funds from numerous investors, pools these funds and invests them in bonds, stocks, real estate precious metals and other investments. It then issues shares or units to investors in proportion to the funds each investor contributes.
• Conceptually, it is not a stock or bond, it’s a way of investing.

Mutual Fund

Legal Structures of Canadian

Mutual Funds

Typical Mutual Fund Complex

• Consists of four things:

• The mutual fund itself
• The mutual fund manager & portfolio advisor
• The custodian
• The distributor

About The Mutual Fund

• Can be organized in two ways
  • As a corporation
  • As a unit trust

The Mutual Fund Complex

• Behind every mutual fund is a series of organizations and individuals that are responsible for the day-to-day administration of the fund, its investment strategies, the safekeeping of ‘unitholders’ contributions and investments held by the fund, and the selling and redemption of fund units.
• Together, we refer to this series of organizations and individuals as a mutual fund “complex.” A typical fund complex consists of: - the fund itself - the mutual fund manager and portfolio advisor - the custodian - the distributor

The Mutual Fund Complex

The Fund Organization

• Mutual funds may be organized as either a unit trust or as a corporation.
• Some funds may operate in isolation, while others are part of a “family” of funds that includes a variety of mutual funds that specialize in different financial markets or have different investment objectives.
• Corporate Form of Organization
  • an incorporated fund is subject to the Canada Business Corporations Act or similar provincial legislation.
  • Certain types of income (e.g. interest income) earned by an incorporated fund may be taxable first as income to the fund, and then in the hands of investors in the fund.