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.
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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
Looking more closely at equity investments, this week we look at common, preferred and restricted voting shares.
When you own common shares you have the right to elect directors and to vote on certain major corporate decisions. You gain (or lose) money based on the company’s performance. Companies do not have to pay a dividend. Many larger, established companies try to pay regular dividends. Others may not pay a dividend because they are not profitable or they choose to reinvest their earnings.
Restricted voting shares are generally the same as common shares, but (as expected) the voting rights of the holder are restricted.
Preferred shareholders generally do not have voting rights, but may be offered special features such as the right to redeem their shares at certain times or to convert their shares to common shares at a certain price. Preferred shares pay a fixed dividend, though a company may reduce or suspend dividend payments if, for example, it does not earn enough profit or needs to preserve its capital.
In general, the prices of preferred shares tend to fluctuate less than those of common shares. However, the prices of preferred shares may fall if:
- the company plans to reduce or reduces dividends
- the rate of return of other investments increases, making preferred shares relatively less attractive
If a company dissolves, preferred shareholders have a right to receive up to the face value of their shares from the company’s remaining assets. They rank behind tax authorities, employees and creditors but ahead of common shareholders, who also have a right to a portion of the remaining assets.
This has been the eighth post in our Investments at a Glance Series. Next we examine flow-through shares, rights and warrants.
Tagged as:
common shares,
equities,
preferred shares,
restricted voting shares
