Investments | VI. Mutual Funds, CEFs, Hedge Funds, and ETFs

Mutual Funds

Also called an Open End Investment Company, these funds issue redeemable shares. In order for an investor to obtain these shares, they must pay the Net Asset Value (NAV) plus a sales load.

An open end investment company, or mutual fund, may continually issue new shares and must redeem shares at net asset value. Income and capital gains are passed through to shareholders, but losses are not passed.

Closed End Funds (CEF)

A CEF issues a fixed number of shares that trade on an exchange or OTC. In order for an investor to obtain these shares, they must pay the stock price plus a commission.

Hedge Funds

ETFs

Investment Company Roles

There are several roles that take part in the administration of an investment company or mutual fund. The roles are: the Investment Manager, Underwriter, Custodian, and Transfer Agent.

The Investment Manager
The manager does what the title says and manages the fund's portfolio of securities. They do not do this for free, and charge a management fee based on a sliding scale calculated from the average daily net assets. This fee is then deducted from the gross income of the fund.

The Underwriter (aka. Distributor or Sponsor)

The Transfer Agent
This role assumes the physical work for the securities. They issue the fund shares, redeem the fund shares, and disburse dividends and capital gains distributions.
The Custodian
Responsible for the safekeeping of the cash and securities in the portfolio, the custodian should never be confused with the sales or distributor of the securities. Their main function is for clerical services.


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