Question

Identify and discuss characteristics of mutual funds. (MULTIPART QUESTION) (PLEASE ANSWER EVERYTHING)

a. Identify and briefly discuss 4 types of expenses faced by mutual fund investors. (8 pts)

b. Earlier today you placed an order for 200 shares of the Constantia Fund. As of the market close, the Fund had $75 million in assets and $21.5 million in liabilities with 3 million shares outstanding. Calculate net asset value (NAV) and determine, not counting brokerage commissions or other fees, how much you ended up paying for your shares? (7 pts)

Answer 1

a)

1) Management Fees: This are the charges paid out of fund's assets to the investment advisor or portfolio manager.

2) Transaction Costs: These are charges payable by fund on purchasing and selling the assets.

3) Entry and Exit Loads: It is the percentage charge or a commission levied on purchase or sale of mutual fund units.

4) Redemption Fees: It is the fee charged when the investor redeem the units.

b)

NAV = [Assets-Liabilities]/No of shares = [75-21.5]/3 = $17.8333

Amount paid while purchasing = NAV*No of shares purchased = 17.833*200 = $3566.6667