Today we continue our up close look at types of investment funds, by taking a closer look at segregated funds, closed end funds, and exchange traded funds.
A closed-end investment fund is a fund that issues a limited number of units or shares, which may trade on a stock exchange.
It may be difficult to buy or sell some closed-end funds if they are not listed on an exchange or they have a low volume of trading activity. As with mutual funds, the level of risk and return depends on what the fund invests in.
An exchange traded fund or ETF is, quite simply, an investment fund that trades on a stock exchange (sometimes these names really are self-explanatory). ETFs typically follow an index but some are more actively managed.
The fees and expenses for an ETF are often lower than what you would pay for a traditional mutual fund. If an ETF simply follows an index, the manager doesn’t have to do as much research into investments or as much buying and selling of investments. The level of risk and return depends on what the fund invests in.
Segregated funds combine investments with insurance coverage, and are issued by insurance companies. The assets are held separately from the insurance company’s other assets.
You buy and sell segregated funds under an insurance contract. The contract comes with a guarantee that protects some or all of your investment if the markets go down. You generally have to hold the contract for 10 years to get this guarantee.
Contracts usually have a death benefit that guarantees the amount your beneficiaries will receive.
You pay similar fees as with mutual funds, but with an annual insurance cost as well.
This was the eleventh post in our Investments at a Glance series. Next, we close the series with a look at commodity pools and labour sponsored investment funds.
Tagged as:
closed-end funds,
exchange-traded funds,
investment funds,
Investments at a Glance,
segregated funds
In this our latest post in the Investments at a Glance series, we look at investment funds.
Investment funds are a collection of investments from one or more asset classes. Each fund focuses on specific investments, like government bonds, stocks from large companies, stocks from certain countries, or a mix of stocks and bonds.
When you buy an investment fund, you’re pooling your money with many other investors. The main advantages are that you can invest in a variety of investments for a relatively low cost and leave the investment decisions to a professional manager.
Investment funds can be set up as trusts, corporations or partnerships. They are issued in units if they are set up as a trust or partnership, and shares if they are set up as a corporation. Returns can include distributions to investors of dividends, interest, capital gains or other income earned by the fund. You can also have capital gains (or losses) if you sell a fund for more (or less) than you paid for it.
The most well known type of investment fund is a mutual fund. A mutual fund is a fund that continually issues units or shares to investors.
Mutual funds are widely available through investment firms, fund companies and banks, and are easy to buy and sell. When you buy or sell units or shares of a fund, you receive the current value of the fund. This is called the “net asset value” or NAV.
You may have to pay fees to buy or sell your fund, switch between funds, or fees to hold funds in a registered plan. The fund pays management fees, operating expenses (or a fixed administration fee), trailing commissions (paid from management fees) and incentive fees. The fees and expenses a fund pays are deducted from the fund’s assets. They reduce the returns you get on your investment.
The level of risk and return involved depends on what the fund invests in: lower for a fund investing in fixed income, higher for an equity mutual fund. Mutual funds are not guaranteed.
As a fund owner, you have the right to vote on major decisions about the fund.
This was the tenth post in out Investments at a Glance summer series. Stay tuned for a closer look at segregated funds, closed end funds, and exchange traded funds.
Tagged as:
investment funds,
investments,
Investments at a Glance,
mutual funds
A flow-through share is a special type of common share issued by oil and gas or mineral exploration companies. These shares allow certain tax deductions for qualifying exploration, development and property expenditures to “flow through” from the company to shareholders.
Resource exploration and development programs are generally high risk. In addition, there is a risk that the company’s expenditures may not meet the strict requirements of the tax legislation. Tax deductions may not be allowed.
Rights and warrants give the holder the right to buy additional securities from a company at a certain price within a certain period of time. They are usually issued in proportion to the number of shares an investor owns.
Rights allow shareholders to acquire more shares. Some rights are listed on stock exchanges. They may not trade actively. In some cases, rights may have resale restrictions or holders may be subject to restrictions on their ability to exercise the rights to acquire additional shares.
Warrants allow shareholders to acquire other securities of the company. They are typically offered to investors with the sale of another security, like a common share. Rights and warrants have similar risk and return considerations as options.
This has been the ninth post in our Investments at a Glance series. Coming up next: the exciting world of investment funds.
Tagged as:
equities,
flow-through shares,
rights,
warrants
