Types of Mutual Funds

November. 24,2020
Types of Mutual Funds

Breakdown by form of fund organization

According to the organizational form of securities investment funds can be divided into: contract type and company type.

 

Contract type funds, also called trust type funds, are investment funds formed by issuing beneficiary certificates according to the trust deed. The fund manager, the custodian and the investor generally enter into a trust deed. The fund manager, as the promoter of the fund, can raise funds to form the trust property by issuing beneficiary certificates, and the fund manager will be responsible for the management of the fund according to the trust deed. The trustee is responsible for the custody of the trust property, specifically handling securities, cash management and related agency business; investors also The holder of a Benefit Certificate is the person who participates in the Fund and enjoys the benefits of the investment by purchasing a Benefit Certificate. Benefit certificates issued by a fund indicate the investor's interest in the investment fund.


A corporate fund is established in accordance with the company law and invests the pooled funds in various securities by issuing shares in the fund. A corporate fund is organized like a joint-stock company in that the assets of the fund company are owned by the investors (shareholders), who elect... The board of directors, which first appoints the fund manager, is responsible for managing the fund's business. The organizational structure of a corporate fund is composed of the following parties: the shareholders of the fund, the fund company, the investment adviser or the fund manager. Fund Custodian, Fund Conversion Agent, Fund Principal Underwriter.

 

Differentiation by trading method

Mutual funds can be divided into open-end funds, closed-end funds and stock exchange-traded funds according to their trading methods.

 

Open-ended funds refer to investors buying and selling funds directly from fund companies or their agents, with the net value of the fund as the purchase and sale price, and the size of an open-ended fund increases with investors' buying and selling.

 

A closed-end fund is a fund that, once the initial offering has been completed, is no longer purchased directly or indirectly by the investor from the fund company, but is instead purchases in the stock market from other purchasers who own the fund, so that the size of the fund does not increase or decrease as a result of the purchase or sale, and in addition The actual price at which a fund is bought and sold may be some distance from its NAV due to the expected up or down psychology of the market. (This is the discount or premium)

Stock exchange-traded funds, also known as ETFs, are broadly similar in principle to closed-end funds, but with the addition of a mechanism that allows the fund to be exchanged with an in-kind exchangeable (i.e., shares in the case of stock funds), which on the one hand makes the discount premium (the difference between price and net worth) not as large as closed-end funds, and on the other hand, although the change in assets is not as large as in open-end funds, it will change due to the exchange mechanism.

 

Separated by operating mode

According to the operation method can generally be divided into active funds and index funds.

 

In active funds, the operating strategy, buying and selling are all decided by the fund manager or the team, in the hope of getting the best performance, and most funds in the market belong to this category.

 

In index funds, the fund manager uses tracking technology to make the performance of the fund similar to that of the corresponding stock index. These funds are generally cheaper in terms of fees, so they actually perform as well as active funds. Most ETFs on the market today fall into this category (a few active ETFs began appearing in the U.S. in 2008), but there are also Many open-end index funds.

 

Breakdown by asset class

By asset class, mutual funds can be broadly classified as.

 

Equity funds: can be subdivided by investment region and industry.

Bond funds: Can be subdivided by bond type and region.

Currency Funds: Subdivided by currency.

Balanced funds: Can hold multiple asset classes at the same time.

Real Estate Funds, Real Estate Investment Trusts

Raw Materials Fund

Hedge Fund: In addition to holding general assets, a manager may use more financial instruments or techniques, such as futures, options, shorting stocks, etc., to operate a fund.