Question

Note: BOOK : The Fund Industry : How Your Money Is Managed

1. What is the unique procedure available to fund shareholders for challenging a fund adviser’s management fees as excessive? What factors do courts use in determining excessive fees?

2. What are the critical differences between mutual funds and closed-end funds? Why do you think closed-end funds have declined in popularity relative to mutual funds?

3. How are exchange-traded funds (ETFs) and unit investment trusts (UITs) different from index mutual funds, and from each other?

Answer 1

1. A section 36 (b) of the investment company act provides the ability to fund share holders to challenge excessive fees. Under this particular section 36 (b), both the advisor of the fund and the top management of the fund house are seen as to have a fiduciary duty with regards to fees charged to investors and courts look at this factor.

2. The critical difference between mutual fund and close end funds is that a mutual fund investor can buy and sell units any time as per his/her needs since mutual funds are open ended. On the other hand close ended funded do not allow that flexibility. Investors have to buy units during the new fund offers and can only sell them at maturity. So it has lower liquidity.

3. The main difference between a ETF's index funds is that Exchange traded funds and UITs can be bought or sold at any point of price during the trading hours of the day. The index funds can be bought at the closing price of a particular day. This the main difference and other aspects are similar