Question

2. What are open-end mutual funds, closed-end mutual funds, unit investment trusts, hedge funds, and exchange traded funds?

Answer 1

Answer:

Open-end mutual funds- It is a type of mutual fund that can issue and redeem shares any time as they are priced daily. Open ended fund can issue unlimited number of shares. Shares are bought and sold at their current Net asset value (NAV). It provides investors a flexible and diversified portfolio.

Examples- Mutual funds, Exchange traded funds and hedge funds.

Closed-end mutual funds- As the name suggests, closed ended funds cannot be issues or redeemed any time. There are fixed number of units for that. After the initial public offer of closed ended funds, company does not issue additional shares. Closed ended funds provide higher return than open ended funds.

Example- Municipal bond funds.

Unit investment trusts- It is an investment company that offers a fixed portfolio of stocks and bonds in the form of redeemable units to investors for a specific period of time. It generally provides capital appreciation and dividend income. Unit investment trust buys and holds shares and bonds and make them available for investors.

Hedge funds- It is a fund that collects money of investors and invest them into diversified asset class. They invest into domestic and international markets to generate higher returns.

Example: BridgeWater Associates

Exchange traded funds- As the name suggests, these funds are traded online on exchange. ETFs contain the basket of products like stocks, bonds etc. They are operated on arbitrage mechanism. It tracks the performance of benchmark or index.

Example: SPDR S&P 500 Trust ETFs