How Mutual Funds Facilitate the Flow of Funds Carson Company is considering a pr

Question

How Mutual Funds Facilitate the Flow of Funds

Carson Company is considering a private placement of bonds with Venus Mutual Fund.

a. Explain the interaction between Carson and Venus. How would Venus serve Carson’s needs, and how would Carson serve the needs of Venus?

b. Why does Carson interact with Venus Mutual Fund instead of trying to obtain the funds directly from individuals who invested in Venus Mutual Fund?

c. Would Venus Mutual Fund serve as a better monitor of Carson Company than the individuals who provided money to the mutual fund? Explain.

Explanation / Answer

Answer: Carson is raising Capital by Privately Selling its Bonds to Venus Mutual Fund, Who will in turn Add the Bonds as an Investment to their Assets held Largely by the Individual Investors, Investing in Venus Mutual Fund. Thus, Carson is Directly Interacting with Venus Mutual Fund to obtain Funds From the Public. Venus would serve Carsons needs, by obviously helping them raise the capital required Venus Mutual Fund is regarded as a Sophisticated Investor, as it understands the risks involved in its investment with Carson, Also most Private Placements are made by Companies that provide Potentially higher returns than an Average Public Offering, they are companies with higher growth Potential, thus benefiting the Investors of Venus Mutual Fund.

Answer: Carson Interacts with Venus Mutual Fund instead of the Public at large, as it will Save Carson all the Compliances by Securities Exchange Commission, which will in turn help them save on heafty underwriting fees and delays. There is also lesser documentations involved in interacting with Venus Mutual Fund Privately.

Answer: Since, it is a Private Placement, the company is not subject to regulatory oversight and public scrutiny that accompanies a public offering. Major Problems with the company may remain hidden. Administration wise, Venus would serve as a better monitor, as it will have its Asset manager, maintain the funds and comply with other procedures like Interest and other Payouts to the Investors, rather than Investors Monitoring the Funds for its ups and downs.

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