Saturday, September 15, 2012

Financial Investment Companies

The investment company is a financial intermediary which collects financial resources and individual companies and financial resources are invested in a portfolio of diversified assets.

Any securities (shares) issued an investment company representing a proportion of ownership in the securities portfolio managed for the benefit (on behalf of) the shareholders of the investment company.

Establishment of an investment company intended to provide an opportunity for small investors to invest in financial securities and diversify risks. By investing in mutual funds, investors can enjoy economies of scale to bear the transaction costs and low commissions. Investment principles used by investment managers: establish an efficient and optimal portfolio.

Investment Companies Management are financial decision-making process of the company investment in order to achieve the goal.

The importance of investment companies management:
1. Funds managed by fund managers is relatively large.
2. Different types of mutual funds will require different management.
3. Competition with other financial institutions to raise funds.
4. The emergence of investment opportunities in the global financial market require special expertise.

Investment companies can be classified from a variety of perspectives:
1. In terms of the nature of issuing shares,
2. In terms of transaction costs,
3. In terms of investment objectives.

Under terms of the nature of issuing shares, the investment company classified:
1. Open mutual funds (open-end fund): Mutual Funds are always ready to sell new shares to the public and to buy back shares that have been outstanding at any time at a price in proportion to the value of the portfolio, which is calculated at the close of the market each day.

2. Closed mutual funds (closed-end funds): mutual funds that sell stocks as well as other companies, but they usually do not buy back the shares.

3. Guardianship unit (unit trusts): similar to mutual funds in terms of number of units covered in the certificate issued, ie fixed, but there are differences with mutual funds that specialize in bonds, namely:

- Bonds in a unit trust is not actively traded.
- Unit trusts have a fixed date of dissolution.
- Unit trust investors know that the portfolio consists of a set of specific bonds and do not worry about that mayor will change portfolio.

Based on the terms of the transaction costs, investment companies (mutual funds) are classified:
1. Mutual fund with sales commissions (load funds): Mutual Funds in the transaction, the issuer imposes a sales commission to its investors.
In general, mutual funds that charge sales commissions are open mutual funds.

2. Mutual funds without sales commissions (no-load funds): Mutual Funds in the transaction does not charge a sales commission to its investors. In the face of competition, many open to mutual funds with no sales commission, but when there is redemption, these mutual funds charge redemption fees.

Based on the terms of its investment objective, the Investment Company (Mutual Funds) are classified into:
1. Stock mutual funds: mutual funds investment objectives minimum of 80% in stocks.
2. Fixed income funds: mutual funds investment objectives minimum 80% in debt instruments.
3. Mutual fund mix: Mutual Funds investment objectives combine equity and debt instruments, with a ratio other than 1 and 2.
4. Money market mutual funds: mutual funds that invest in debt instruments goal with maturity of less than one year.

Each has a characteristic type of mutual fund returns and risk objectives. Mutual funds with higher expected returns, then the risk will also be high. If the terms of risk return characteristics, mutual funds between two extreme points of investment instruments, which include deposits and shares.

Fund investment company from the sale of shares issued to the public. Before the sale of mutual fund shares done, first to be announced on the prospectus.

Prospectus is a formal document that describes a mutual fund operations, management, and the fees to be paid by the account holder. With the prospectus is expected to prospective investors interested in investing in a mutual fund with all its consequences.

Sources of funds to another investment firm is the investment return that is not shared to its shareholders. The results of the decision on the allocation of funds in the form of assets owned investment company as a result of its investment. The purpose mutual fund investments are financial assets, and must be adapted to the existing provisions in the prospectus.

Characteristics of portfolios formed by investment managers must be adapted to the prospectus. Thus, the majority of financial assets that are used as an instrument of investment depends on the type of mutual fund. Value-managed investment fund managers expressed as net asset value, or often expressed in terms of NAV (net asset value).

NAV = (value portfolios formed) - (expenses incurred).
Broadly speaking, the Investment Company assets include:
1. Cash and cash equivalents: for keperlua transactions, ca the view to meet withdrawals, speculation, etc..
2. Investments in financial assets: according to its type of mutual fund,
3. Other assets: fixed assets are used to support the operation of the Investment Company.

PI revenue sources:
1. Returns generated from investing in a managed portfolio, and
2. Commission sales (for load funds).
Returns generated from the investments in the portfolio can be formed interest, dividends, and capital gains.
Return type depends on the classification of its mutual funds.

The primary cost of investment firms:
1. Operational costs (salaries of the board, etc..)
2. Fees for financial advisors,
3. Cost of sales and marketing,
4. Fee supervision and accounting services,
5. Investment transaction costs, and
6. Tax charge, as a business entity.


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