The central idea of a mutual fund is to enable investors to pool their money and place it under professional investment management. The manager makes the trades, realizing a gain or loss, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors.
Canadian trusts are investment syndicates that pool their money to buy a cash flow generating asset with the cash flow after expenses distributed back to the unit holders. Canadian trusts do not engage in exploration, development, construction or manufacturing. They focus on ownership and management with a view to generating income.
Exchange-Traded Funds are a type of closed-end mutual fund. Essentially, ETFs are mutual funds that trade on the stock market. Typically, ETFs try to replicate an index such as the S&P 500, Dow Jones Industrial Average (DJIA), Russell 2000, MSCI EAFE, and so on.
An Open-End Fund is a mutual fund which can issue and redeem shares at any time. An investor can purchase shares in such funds directly from the mutual fund company, or through a brokerage house. The price per share, or NAV (net asset value), is calculated by dividing the fund's assets minus liabilities by the number of shares outstanding. This is usually calculated at the end of every trading day.
A Closed-End fund is one with a limited number of shares. No new shares are issued after the fund is launched. An investor can purchase shares in a closed-end fund from a broker. The price of a closed-end fund is determined by the premium (or discount) placed on it by the market. The value of the securities in the fund divided by shares in the fund, is called NAV for net asset value. The premium or discount means that the market price is above (premium) or below (discount) the NAV.
Hedge funds use alternative strategies such as selling short, arbitrage,
trading options or derivatives, using leverage, investing in seemingly
undervalued securities, trading commodity and FX contracts, and attempting
to take advantage of the spread between current market price and the
ultimate purchase price in situations such as mergers.
Private equity deals with equity capital which is made available to companies or investors but is not quoted on a stock market. Most US private equity firms manage a fund raised from third parties. It the case of the third parties being individuals, they typically require them to have a net worth exceeding $1 million USD.
Venture capital is a general term to describe financing for startup and
early stage businesses as well as businesses in "turn around" situations.
Venture capital investments generally a relatively high risk investments,
but may offer the potential for above average returns.
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