Irwin/McGraw-Hill 1 Mutual Funds Chapter 4 Financial Institutions Management, 3/e By Anthony Saunders

Irwin/McGraw-Hill 2 Mutual Funds n Open-ended n Closed-end n End of 1997: More than 5,300 stock and bonds mutual companies. Total assets of $3.7 trillion.

Irwin/McGraw-Hill 3 Size, structure and composition First mutual fund: Boston, 1924 Slow growth, initially. Advent of money market mutual funds, »Regulation Q Total assets in mutual funds: »1940: $0.4 billion »1990: $568.5 billion »1996: $2,637.4 billion

Irwin/McGraw-Hill 4 Size, Structure and Composition By asset size, the mutual fund industry is the second most important FI group. n Types of mutual funds: Long-term funds (76.4% of assets, 1997) »Bond and income funds »Equity funds Short-term funds (23.6% of assets, 1997) »Taxable and tax-exempt MMMFs »Generally higher returns than bank deposits but uninsured

Irwin/McGraw-Hill 5 Overview of Mutual Funds Objectives, rates of return, and risk characteristics vary. n Examples: Aggressive growth funds Growth funds Precious metals International Ginnie Mae

Irwin/McGraw-Hill 6 Returns to Mutual Funds Income and dividends of underlying portfolio. Capital gains on trades by mutual fund management. Capital appreciation in values of assets held in the portfolio. »Marked-to-market. »Net-asset value (NAV).

Irwin/McGraw-Hill 7 Types of Funds Open-ended funds: contrast with most corporate securities traded on stock exchanges. Closed-end investment companies: Fixed number of shares »Example: REITs »May trade at premium or discount. Load versus no-load funds.

Irwin/McGraw-Hill 8 Balance Sheet and Trends n Money Market Funds Key assets are short-term securities. Many have share values fixed at $1 and adjust number of shares owned by the investor.

Irwin/McGraw-Hill 9 Balance Sheet and Trends n Long-term Funds Stocks comprise over 62.8 % of asset portfolios at September Shift to U.S. Treasuries, municipal bonds etc. when equity markets are not performing as well.

Irwin/McGraw-Hill 10 Regulation One of the most closely regulated among non- depository FIs. Primary regulator: SEC »Emphasis on full disclosure and anti-fraud measures to protect small investors. »NASD supervises mutual fund share distributions.

Irwin/McGraw-Hill 11 Legislation Investment Advisers Act, Insider Trading and Securities Fraud Enforcement Act of Market Reform Act of 1990 »Allows SEC to halt trading and introduce circuit breakers. National Securities Markets Improvement Act of »Exempts mutual fund sellers from state securities regulatory oversight.