Introduction investment companies

4 important questions on Introduction investment companies

Why are Investment companies used by investors?

  1. The main motivation is diversification.
  2. Idiosyncratic risk can be diversified away.
  3. Small investors, with little money, would have difficulties to hold the optimal risk portfolio
  4. Investment companies pool funds of individual investors and invest in a wide range of securities or other assets

What are the services provided by investment companies?

  1. Record keeping and administration.
  2. Diversification and divisibility.
  3. Professional management. Hire specialists/analysts to keep track of the markets.
  4. Lower transaction costs.

What is the Net Asset Value (NAV) in investment companies?

NAV= (Marketvalue of assets - Liabilities) / Shares outstanding
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What are the 5 types of investment companies?

  1. Unit Investment Trust
  2. Closed-end
  3. Open-end/ mutual funds
  4. Hedge funds
  5. Exchange traded funds

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