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Types of Mutual Funds

Types of Funds

Three types of structures operate as investment companies: open-end funds, closed-end funds, and unit investment trusts. Although only open- and closed-end funds are offered in the Bahamian Dollar market, several other types of funds are commonplace elsewhere.

Unit Investment Trust (UIT)

These structures operate similarly to an open-end mutual fund. How-ever, they differ in several im-portant ways:

  • legally, they are es-tablished as trusts, as the name im-plies, and are governed by a trust deed;
  • from an investment per-spective, they are typically passive in nature and do not actively trade securities;
  • they offer investors units rather than shares;
  • they are typically established with a predetermined termination date.

Open-End Fund:

An investment company that offers shares on a continuous and unlimited basis and allows for the redemption of shares by shareholders on a scheduled basis.

 

Closed-End Fund:

An investment company characterized by the initial offering of its shares only during a speci-fied period of time. Thereafter, the fund is closed with trading of its shares conducted through an exchange, usually at a premium or discount to the fund’s net asset value

 

Exchange Traded Fund (ETF)

These funds are the new kids on the in-vestment block, having made their debut only 20 years ago, but today rep-resent more than $2.5 trillion of overall US investment company assets. Typically established as an open-end investment company, an ETF none-theless trades on stock exchanges at market-determined prices, just like a stock or bond. Although they typically mirror a portfolio of securities—such as an global equity index or a basket of energy stocks—they trade like an individual security and can be bought and sold throughout the day.

Closed-End Fund

Closed-End funds occupy the other end of the Col-lective Investment Scheme spectrum, only offering a predetermined num-ber of shares for sale for a specified period of time.

As the name indicates, the fund then “closes” and any investor who wishes to purchase shares must do so from an existing investor in the sec-ondary market through an Exchange, often at either a discount or premium to the Net Asset Value of the fund itself (ie-the net value of the underlying portfolio of assets the fund owns).

Mutual Funds History

Mutual funds are “pooled investments,” strictly meaning that they combine contributions from many different people under an investment compa-ny and then purchase a portf...

Important Documents

There are several important documents that mutual fund subscribers should understand. Offering Memorandum. A mutual fund that offers its shares to the public is required to produce an official Offering Memorandum (OM) and to typically file it with t...

Regulations & Structure of Mutual Funds

Mutual funds in the Caribbean are governed by country-specific legisla-tion and regulations that reflect the objectives and concerns of the host country. They are required to fulfill all of the obligations related to licens-ing, reporting, audit, and operation that are prescribed in the legisl...

FUNDS WORK

Many individuals are familiar with bank term deposits and how they work. A fixed time period and a fixed interest rate make your eventual re-turn easy to calculate up front: $100,000 @ 4% interest for one year will earn $4,000 of interest and result in a balance of $104,000 at the end of that ...

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