Mutual Funds
Chapters in this video
- 0:00 The Investment Company Act of 1940 statutory types
- 1:41 Open-end fund mechanics: continuous issuance and forward pricing
- 3:07 Net asset value (NAV) formula and the 7-day redemption rule
- 4:35 Closed-end fund mechanics: fixed shares and exchange trading
- 5:54 Premium and discount pricing: the closed-end fund quirk
- 6:48 Leverage, margin, and short-selling permissions compared
- 7:35 The ultimate open-end vs closed-end comparison table
- 8:05 Rapid-fire exam recap
What this video covers
- The three statutory types of investment companies under the Investment Company Act of 1940 (ICA), and why face-amount certificates are obsolete while unit investment trusts (UITs) hold static portfolios
- How open-end funds continuously issue and redeem shares directly with investors at net asset value (NAV), with no fixed number of shares outstanding
- Forward pricing: how orders placed before 4:00 PM ET receive that day's NAV, and orders after receive the next day's NAV
- Why open-end funds cannot trade on an exchange, cannot be purchased on margin, cannot be sold short, and never trade at a discount to NAV
- How closed-end funds issue a fixed number of shares through a one-time initial public offering (IPO), then trade continuously on exchanges at market prices determined by supply and demand
- Why closed-end funds commonly trade at a discount to NAV, and how this pricing quirk distinguishes them from open-end funds on the exam
- The leverage, margin, and short-selling permissions that apply to closed-end funds but are prohibited for open-end funds
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