please please help, really confused will definately rate D. Indicate the most ap
ID: 2793340 • Letter: P
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please please help, really confused will definately rate
D. Indicate the most appropriate response using the following codes: G-greater, larger, more, enc. L- less, lower, etc S the same as, equal. etc. 1, Value investing is nsky than growth investing 2. Management foes for index funds are than for actively mansged funds 3. Small cap fund volatility is generallythan large cap voiatifity in a bear market 4. An index bond fund holds a port olio that is 5. The value of the annual withdrawal from a fxed-period withdra Plan s longer time periods. 7. Index funds have 8. Open-end funds 9. The multi-manager style features volatility than funds 10, when amounts withdrawn from a fixed-dollar withdrawal plan are E. Short Answer Questions Explain the difference between the following terms: the benchmark index neach year ar is meaningful than management fees than actively traded funds are_ liquid than closed-end funds with singie styles Mutual Fund Trusts and Mutual Fund Corporations Offering and Redemption Price Front-end and Back-end Loads Ratio Withdrawal and Fixed-Dollar Withdrawal Indexing and Closet IndexingExplanation / Answer
D 1. Value investing refers to identifying underpriced products, they tend to trade at a lower price compared to the valuation as per their fundamentals. Growth investing is investing in companies which have shown consistent growth and are likely to grow at a steady pace due to their consistency and efficiency which is evident from their past performance. Value investing, thus is riskier than Growth investing. Answer is Value investing is "more" risky than growth investing.
2. Index funds are a replica of the indices where they do not require any active management, at regular intervals, their proportions are checked to ensure that the list of stocks and their proportions match the relevant indices against which they are benchmarked. Actively managed funds are those which need to be managed based on the market trends and the future prospects of the stocks / investments held. Hence, Management fees for index funds are "lower" than actively managed funds
3. Small cap funds which typically invest in companies which do not have good fundamentals, however, they may have generated investor interest are likely to fall steeper in a bear market compared to large cap funds which typically invest in companies with good fundamentals and stable revenue / net profit outlook. Hence, Small cap funds' volatility is generally "greater" than largecap funds' volatility in a bear market.
4. Index bond fund would be a replica of the benchmark, the underlying assets and the proportion of investment (weight) in the portfolio. An index bond fund holds a portfolio that is the same as the benchmark index.
5. Fixed period withdrawal plan will allow for equal amounts to be withdrawn every year for the stipulated time period. The value of the annual withdrawal from a fixed-period withdrawal plan is equal each year.
6. Mutual funds should be considered for investment for longer horizon, one should consider investing in equities atleast for a time frame ranging from 1 – 5 years’ or align it with their financial goals. Hence, when evaluating fund returns, a period of less than one year is less meaningful than longer time periods.
7. Index funds have lower management fees than actively traded funds (same explanation as Q2)
8. Open end funds are available for redemption through out the year, you can withdraw your amount as per your requirement. Close end funds have lock-in and hence you cannot withdraw during this time frame. Open – end funds are more liquid than closed – end funds.
9. A fund managed by managers who employ multiple styles of investing are likely to face higher volatility given that there could be clashes in terms of the underlying assets and ideologies. Single styles can have better risk mitigation and hence, the volatility is lower. The multi-manager style features greater volatility than funds with single styles
10. When amounts withdrawn from a fixed – dollar withdrawal plan are equal
E. 1. Mutual fund trusts and Mutual fund corporations – From comparison of structures, the mutual fund corporation is a single legal tax entity for tax purposes. All the funds managed by the corporation are put together and taxes are assessed cumulatively. Adjustments across funds is allowed. Mutual fund trusts are taxed on fund by fund basis, this method is considered more transparent.
2. Offering and redemption price – Offering price refers to the price at which the seller offers the product / service – hence, it is the price at which you can buy the product / service. Redemption is synonymous with selling and hence, selling price is referred to as redemption price.
3. Front-end and Back-end loads – Front – end loads are loads applied upon purchase of mutual funds. Back – end loads are applicable during redemption / sale of mutual funds.
4. Ratio withdrawal and fixed – dollar withdrawal = Ratio withdrawal is a certain % of amount withdrawn at regular intervals. Fixed dollar withdrawal is where fixed amount withdrawn for a stipulated period.
5. Indexing and closet indexing – Indexing is when a fund or portfolio replicates the benchmark / index and matches the underlying assets and weights. Closet indexing is when the manager actually promises an actively managed fund, but would build a portfolio which is similar to the index / benchmark itself in terms of weights. This is done to ensure that the managers ensure returns on the portfolio atleast to the extent of the benchmark, they are unlikely to underperform the benchmark. Closet indexing has a negative connotation in the industry, the investor is better off investing in index funds which are of lower cost.
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