...and weaknesses of mutual funds and ETFs Peter Henderson, The Canadian Press In this article Jeanette Brox a financial advisor from Toronto discusses the strengths and weaknesses of both mutual funds and exchange traded funds (ETFs). The mutual funds normally offered by most financial institutions have come under competition from low-cost ETFs which have emerged as an alternative. Both mutual funds and ETFs minimize risk of investments of bundling financial products including stocks, bonds and fixed-income securities together. ETFs unlike mutual funds are not managed by financial professionals which reduces overhead and therefore fees. Jeanette Brox recommends mutual funds and says the management fees are worth it for investors who want professional help. The investment market in Canada is still mostly dominated by mutual funds. The mutual fund companies have totalled $1.2 trillion worth of assets at the end of June which in comparison to $84.7 billion worth of exchange traded funds. Most Canadians want the simplicity of mutual funds as part of a plan with a professional. Jeff Kaminker, president of Frontwater Capital said that the popularity of mutual funds is the reflection of investing strategies of conservative Canadians. Many people from the finance industry are in favour with mutual funds such as Sandeep Gosal, ash associate consultant at research firm Investor Economics. He stated that mutual funds can have some fees for buying in and out, ETFs can also bring extra...
Words: 482 - Pages: 2
...Tax Efficiency of ETFs by Joseph Curran Investing in the market is an activity that many people want to do regularly. Because of advances in technology and advances in access to capital markets, a relatively new type of investment called an ETF is allowing ordinary investors to participate in the stock market with greater ease than they were able to do previously. Individual investors have been able to participate in the broad market for many years. They basically had two options before the advent of the internet. They could call a stockbroker and place an order for a particular stock, (usually paying a commission of about $100.00 - $200.00 dollars per trade), or they could invest (buy shares) in a mutual fund which held many different stocks and offered diversification to the investor, many (but not all) mutual funds do not charge a commission. If the investor wanted to spread their risk among many different parts of the economy, a mutual fund was the main and most cost-effective way to accomplish that objective. ETFs have some similarities to mutual funds, but this article will highlight some of the differences between ETFs and mutual funds. ETFs and mutual funds are both investment companies, (legally classified as “open-end” companies), but ETFs and mutual funds function differently, and the difference in the way they function is what allows ETFs to be able to be more tax-efficient than a mutual fund. Mutual funds “pool together” investors’ funds and buy stocks in proportion...
Words: 1173 - Pages: 5
...Exchange-traded fund From Wikipedia, the free encyclopedia An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks.[1] An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features.[2][3] ETFs are the most popular type of exchange-traded product.[citation needed] Only so-called authorized participants (typically, large institutional investors) actually buy or sell shares of an ETF directly from or to the fund manager, and then only in creation units, large blocks of tens of thousands of ETF shares, which are usually exchanged in-kind with baskets of the underlying securities. Authorized participants may wish to invest in the ETF shares for the long-term, but usually act as market makers on the open market, using their ability to exchange creation units with their underlying securities to provide liquidity of the ETF shares and help ensure that their intraday market price approximates to the net asset value of the underlying assets.[4] Other investors, such as individuals using a retail broker, trade ETF shares on this secondary market. An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be bought or sold at the end of each trading day for its net asset value, with...
Words: 6055 - Pages: 25
...Article-1 Mutual Funds Details Regulation The article provide information on the regulatory changes that are going to take place in the mutual fund trading. According to this article, the financial advisors and the investment firms will be required to provide fund fact sheet to investors before the purchase of the mutual fund. Currently, the fund fact sheets are sent 2 days after the mutual fund purchase. An investor notice has already been published by MFDA, along with IFIC. This change is part of their Investor education outreach program for 2016. Important points of this change: * The purchase of fund will not be effective until the fund fact sheet is received by the investor. * Keeping track of the delivery of document will be responsibility of investment firm. * The change will be effective from 30 May, 2016. * The new regulation will help investors to know the clear picture of the fund before they purchase it. * The fund fact sheet will include all details regarding the fund: Fund name, portfolio manager, fund fees, trailing commission, minimum amount, top 10 investment holdings, investment mix, fund performance and risk rating. The article is important to know as the change discussed will saves the investor time and money and take make more accurate decision regarding investment. Article-2 There’s rush for gold ETFs The article contains important information about investing in gold ETFs. The gold ETFs which were in loss from last 2 years being...
Words: 848 - Pages: 4
...FUND TRACKING ASSIGNMENT • For this assignment you MUST WORK IN PAIRS. • Pick your partner for this assignment BEFORE the start of WEEK 3 • In the Assignment module in SLATE Content is a link to the google drive spreadsheet where you and your partner must sign up for this assignment. Be sure to register in the correct class. • In the meantime, visit www.globefund.com and familiarize yourself with the content on the website and different ways to select mutual funds. SUBMISSION #1: 1. Due week 4 in SLATE Dropbox (see Dropbox for exact date and time). 2. One partner will invest $10,000 in each of 3 actively managed* mutual funds managed by Canadian mutual fund companies. See Appendix for a list of potential mutual fund companies and funds to choose from. One fund must be chosen from each of the following categories: • Canadian Equity • Emerging Markets Equity • Canadian Fixed Income *Remember, actively managed means it does NOT follow the related index but tries to outperform the index by selecting only what the portfolio managers believes will be the best performing securities. 3. One partner will invest $10,000 in each of 3 passively managed Exchange Traded Funds with one ETF coming from each of the following categories. Canadian Equity STOCK SYMBOL Globefund Code BMO S&P/TSX Capped Composite Index ETF ZCN BMOCANEQ iShares Core S&P/TSX Capped Composite Index ETF XIC IUNSTCID Vanguard Canada - FTSE Canada Index ETF VCE VANMSCCA Emerging...
Words: 1350 - Pages: 6
...04 Mutual Funds and Other Investment Companies Multiple Choice Questions 1. Which one of the following statements regarding open-end mutual funds is false? A. The funds redeem shares at net asset value. B. The funds offer investors professional management. C. The funds offer investors a guaranteed rate of return. D. The funds offer investors professional management and a guaranteed rate of return. E. The funds redeem shares at net asset value and offer investors professional management. 2. Which one of the following statements regarding closed-end mutual funds is false? A. The funds sometimes trade at a discount from NAV. B. The funds are sold at the prevailing market price. C. The funds offer investors professional management. D. The funds redeem shares at their NAV. E. The funds sometimes trade at a premium to NAV. 3. Which of the following functions do investment companies perform for their investors? A. Record keeping and administration B. Diversification and divisibility C. Professional management D. Lower transaction costs E. Record keeping and administration, diversification and divisibility, professional management, and lower transaction costs 4. Multiple Mutual Funds had year-end assets of $457,000,000 and liabilities of $17,000,000. There were 24,300,000 shares in the fund at year-end. What was Multiple Mutual's Net Asset Value? A. $18.11 B. $18.81 C. $69.96 D. $7.00 E. $181.07 5. Growth Fund had year-end...
Words: 11062 - Pages: 45
...in gold through E-Gold, Gold mutual funds, Gold ETFs or gold bars and coins. Not to forget, many Indians buy gold jewelry that they will never use considering them as investment. Each of these has their own merits and demerits. * E-Gold Pros: 1. No recurring charges like expense ratio of mutual funds, ETFs involved. 2. Units as small as 1 gram can be redeemed for physical gold. 3. Greater price transparency. Cons: 1. Separate trading account and demat account needed for trading in e-gold. 2. Not the best way to invest in terms of tax. It treated as physical gold for taxation. 3. Newly launched product in India. Commodity exchanges are not well regulated like stock exchanges. * Gold ETFs Pros 1. Units are backed by corresponding units of physical gold which are kept in secured vaults. 2. Returns close to that of e-gold. 3. Long term capital gains tax of 10% without indexation or 20% with indexation kicks in after 1 year. No wealth tax applies. Cons: 1. Trading account and demat account needed for buying ETFs. * Gold mutual fund Pros 1. Through Systematic Investment Plan (SIP) of gold mutual funds one can affordably have disciplined investment in gold. One can invest as little as Rs 100 every month in gold funds. 2. Long term capital gains tax of 10% without indexation or 20% with indexation applies after 1 year. No wealth tax applies. Cons 1. Expense ratio is higher than in gold ETFs. 2. Returns slightly lower than that of gold ETFs depending on fund’s performance...
Words: 402 - Pages: 2
...Chapter 4- Mutual Funds and Other Investment Companies Why buy mutual fund: people are lazy if you are trading stocks you have to give basis data for transactions you make for takes but with a mutual fund they do it for you. Diversification ** an individual investor choosing a mutual fund should consider not only the fund’s stated investment policy and past performance, but also management fees and expenses.** 4.1 INVESTMENT COMPANIES Investment Companies do the following tasks: WHY MUTUAL FUNDS?? • Administration & record keeping (people don’t want to do it themselves) • Diversification & divisibility (diversified portfolio) • Professional management • Reduced transaction costs Investment Companies: Net Asset Value (the value of each share) What determines share price NAV!! • Net Asset Value ' Any fund totals up all the shares does the calculation and generates an NAV ' One time per day ' Used as a basis for valuation of investment company shares ' Selling new shares cash goes in ' Redeeming existing shares (liquidate stocks and send you cash back) cash goes out ' They can keep printing more shares Calculation: Market Value of Assets - Liabilities Shares Outstanding 4.2 TYPES OF INVESTMENT COMPANIES: Investment companies: either Units of trust or managed investment companies Unit Trusts: subset of investment company...
Words: 1453 - Pages: 6
...An "index fund" describes a type of mutual fund or investment trust whose investment objective typically is to achieve approximately the same return as a particular market index. An Exchange Traded Index Fund is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETIFs experience price changes throughout the day as they are bought and sold. ETIFs, commonly referred to as index-based ETFs, are designed to track the performance of their specified indexes or, in some cases, a multiple of inverses of their indexes. Some people will agree that international investments is good. It allows investors to reduce the risk of their portfolio, but still allowing them with additional profit potentail. If you have the money to spend you would suggest that you invest in international investments. The return and the risk of an investment will depend on the actual currency that was used. The exchange Traded Funds passive nature is a necessity: the funds rely on an arbitrage mechanism to keep the prices at which they trade roughly in line with the net asset values of their underlying portfolios. For the mechanism to work, potential arbitragers need to have full, timely knowledge of a fund's holdings. ETFs are different from Mutual funds in the sense that ETF units are not sold to the public for cash. Instead, the Asset Management Company that sponsors the ETF (Fund) takes the shares of companies comprising the...
Words: 688 - Pages: 3
...Paper topic: Mutual Funds vs ETFs: historical data, argumentative analysis and position. Introduction Mutual Fund is a term, meaning joint venture. As the human minds evolve more civilized, it also has undergone many evolutionary postures. Formerly it was practiced as close ended mutual fund in which combined investment had limits. Simply in those funds a restricted number of investors were allowed to play. As a result they used to have limited profit. While following the same pattern some innovative thoughts were put together along with the basic ingredients of the recipe of mutual funds to make it more reproductive. The consequences resulted in the body of open ended mutual funds. These open ended funds are still hailing the demanding curse of present age. Using the mutual fund scheme was more beneficial for the investors and was less fruitful for the manager or the body managing and investing the funds. Therefore to make more money from limited funds a newer system was stemmed into the fabric of trade. That system was to engage poor into this business by investing money in the form of blocks. This trick helped the managing body to withdraw more money out of the flow in the form of commission. On the contrary it involved less investment share which was easy to contribute by an average investors. Hence it had the characteristics of close ended mutual fund accompanied by replication of index. This system was easy to manipulate and friendly to the traders...
Words: 3826 - Pages: 16
...Multiple Choice Questions 1. Which one of the following statements regarding open-end mutual funds is false? A) The funds redeem shares at net asset value. B) The funds offer investors professional management. C) The funds offer investors a guaranteed rate of return. D) B and C. E) A and B. Answer: C Difficulty: Moderate Rationale: No investment offers a guaranteed rate of return. 2. Which one of the following statements regarding closed-end mutual funds is false? A) The funds always trade at a discount from NAV. B) The funds redeem shares at their net asset value. C) The funds offer investors professional management. D) A and B. E) None of the above. Answer: D Difficulty: Moderate Rationale: Closed-end funds are sold at the prevailing market price. 3. Which of the following functions do mutual fund companies perform for their investors? A) Record keeping and administration B) Diversification and divisibility C) Professional management D) Lower transaction costs E) All of the above. Answer: E Difficulty: Easy Rationale: Mutual funds are attractive to investors because they offer all of the listed services. 4. Multiple Mutual Funds had year-end assets of $457,000,000 and liabilities of $17,000,000. There were 24,300,000 shares in the fund at year-end. What was Multiple Mutual's Net Asset Value? A) $18.11 B) $18.81 C) $69.96 D) $7.00 E) $181.07 Answer: A Difficulty:...
Words: 5175 - Pages: 21
...but these are some of the risks the organisation is willing to take head-on. In addition, with the current instability found in the financial sector after the infamous global financial crisis, companies run the risk of being caught up again in the recession. However, the company has engaged with the insurance companies and also with the necessary financial institutions so that in the event of unfortunate occurrence, the company remains safe. One example of financial instrument for investment is the Exchange Traded Fund (ETF), just like any other source of investment; it does not come along without its risks. In other words, there is no investment that is free from risk; they are all likely in one way or the other to land an organisation in trouble. For instance, the ETF regulations are susceptible to different diversification essentials and restricts of counterparty exposure with regard to securities lending actions. In addition, investing in db x-trackers ETFs entail a number of risks including risks associated with relevant index, risks related to exchange rates, interest rate risks,...
Words: 2923 - Pages: 12
...Use this tool as an effective way to identify the merits (PROS) and the drawbacks or costs (CONS) of alternatives. More then a simple pros/cons evaluation, this tool forces you to look at ways of ''FIXING” the CONS - resulting in a final 'picture' of the merits and costs (costs = the fixes, along with the cons you can't fix) for a particular alternative. This is a good technique to use when you have only a couple of alternatives to consider. This tool is also good to use when you have identified one or two remaining alternatives after using other tools (eg. Simple Ranking or SMART) to do a 'reality check' and cost/benefit analysis. I have also seen students use it effectively for indentifying linked decision to a particular alternative and implementation planning. 1. Write down the alternative you plan to evaluate 2. List up all the benefits you can. Use a white board for this, or post-it notes. Then consolidate these by combining and organizing them. (eg. combine those that are similar or redundant by expressing it as one Pro, and eliminate any frivolers PROS that are not important). Write down the consolidated PROS in the template PROS box. 3. Now list up all the Cons (using white board, or post-it notes). Organize and consolidate as you did with the PROS. Write down the consolidated CONS in the box. 4. Now get creative and look at how you can eliminate a each CON by ‘FIXING IT’. For example, say you were assessing the alternative ‘To Get Married’...
Words: 798 - Pages: 4
...3 ETFs Set to Soar During the Recovery Exchange-traded funds (ETFs) have revolutionized investing. Giving individual investors access to sophisticated investing strategies available only to the pros just a decade ago. The best part: ETFs are cheap to own (very low expense fees). And they're liquid. Meaning you buy and sell them in real time just like stocks -- except that with an ETF you're controlling hundreds of stocks with a single trade! Giving you the power to instantly diversify your portfolio or quickly seize opportunities to profit from coming macroeconomic trends (like an energy crisis or a housing boom) that could push a basket of stocks up or down. A quick example: Want to tap into the wealth-building power of the international markets? (And hedge against your U.S. investments?) Purchase an ETF that tracks the developed international markets of Europe, Australasia, and the Far East (the MSCI EAFE Index). It's like adding 800 of the very best international stocks to your portfolio -- instantly! And for just 0.35% in annual fees. One more: You may have heard the old adage "Small caps lead bull markets." Truth is, small caps don't just lead into bull markets, they charge into them -- handing investors an average return that's more than double that of the S&P 500, according to data from RidgeWorth Funds (a Lipper Award-winning firm). Want to expose your portfolio to that kind of growth? All you have to do is snap up an ETF that mirrors the small-cap index --...
Words: 1910 - Pages: 8
...CHAPTER 4: MUTUAL FUNDS AND OTHER INVESTMENT COMPANIES PROBLEM SETS 1. The unit investment trust should have lower operating expenses. Because the investment trust portfolio is fixed once the trust is established, it does not have to pay portfolio managers to constantly monitor and rebalance the portfolio as perceived needs or opportunities change. Because the portfolio is fixed, the unit investment trust also incurs virtually no trading costs. 2. a. Unit investment trusts: diversification from large-scale investing, lower transaction costs associated with large-scale trading, low management fees, predictable portfolio composition, guaranteed low portfolio turnover rate. b. Open-end mutual funds: diversification from large-scale investing, lower transaction costs associated with large-scale trading, professional management that may be able to take advantage of buy or sell opportunities as they arise, record keeping. c. Individual stocks and bonds: No management fee, realization of capital gains or losses can be coordinated with investors’ personal tax situations, portfolio can be designed to investor’s specific risk profile. 3. Open-end funds are obligated to redeem investor's shares at net asset value, and thus must keep cash or cash-equivalent securities on hand in order to meet potential redemptions. Closed-end funds do not need the cash reserves because there are no redemptions for closed-end funds. Investors in closed-end funds sell their...
Words: 1832 - Pages: 8
