| Investment vehicles at a glance |
| Vehicle |
What they are |
How they work |
How they’re managed |
Features to note |
| Mutual funds |
Portfolios of stocks, bonds, cash and other securities. Investors' money is pooled and a portfolio manager invests it according to a prospectus. Can target narrow sectors, broad markets or a combination of asset classes. |
Funds issue shares on demand.
Investors purchase shares from the fund directly or through a financial intermediary, and sell them back the same way. New shares are continuously available for purchase and may be redeemed any day the stock market is open. |
The holdings of actively managed mutual funds are chosen by professional investment managers. Passive mutual funds seek to replicate the holdings of an index, such as the S&P 500 Index, for example. |
– Redeemable on any day the market is open at shares' current price (net asset value, or NAV); payments are generally sent within one business day.
– Minimum purchase amount varies by fund; may offer periodic investment plans with low minimum investment amounts.
– Typically offer automatic reinvestment of capital gains and dividends.
– Ownership can create taxable events for investors.
– Sales charges and expenses vary. |
| Exchange-traded
funds (ETFs) |
An investment tool that combines some of the features of mutual funds with some of the features of individual stocks. Like a mutual fund, an ETF gives investors exposure to a group of securities through a single transaction. Like a stock, the ETF shares are traded on exchanges at marketdetermined prices. |
Investors buy and sell ETF shares on an exchange, the same way they would buy and sell an individual stock.
By definition, an ETF has an "openend investment structure," which means it can create new shares or redeem existing shares to meet market demand. |
Most ETFs seek to replicate the holdings of an index, such as the S&P 500 Index, for example. Some ETFs are actively managed — their holdings are chosen by a professional investment manager. ETFs can target narrow sectors, broad markets or a combination of asset classes. |
– Trade like stocks throughout the trading day on exchanges.
– No minimum purchase.
– Brokerage commissions apply.
– Are transparent, disclosing their full portfolio holdings daily.
– Have a low-cost, tax-effi cient product design.
– Are fully invested and are never closed to investors. |
| Closed-end funds |
Portfolios of stocks, bonds, cash and other securities. Can target narrow sectors, broad markets or a combination of asset classes. |
Size of fund and number of shares are determined at initial public offering (IPO). No cash flows into or out of fund after the IPO. Investors can buy shares during IPO; afterward, shares can be bought or sold over a market exchange through a broker-dealer, similar to how individual stocks are traded. |
Holdings are chosen and actively managed by professional investment managers. |
– Trade like stocks throughout the trading day on exchanges.
– Because only a fixed number of shares are issued, market demand may cause available shares to trade higher (or lower) than the listed share price (NAV).
– No minimum purchase.
– Ordinary brokerage commissions apply.
– Can own more "illiquid"2 securities than mutual funds, offering access to specialty markets.
– Often use leverage, an advanced trading technique. |
| Unit investment trusts (UITs) |
Like a mutual fund, UITs hold a defined pool of securities (such as stocks, bonds, ETFs, mutual funds or alternatives) chosen by a professional investment manager. They are available with a wide range of objectives and risk levels. |
A limited number of shares (units) are offered when the UIT launches. Investors can buy shares during this IPO. After the IPO, many UIT sponsors will maintain a "secondary market" — that is, buying and selling units on an exchange. UITs will sometimes buy back units at an investor’s request.
Equity UITs have a set termination date at which time the investor may roll over to another trust or cash out.
Fixed income UITs generally will terminate when the last bond in the trust matures or is called. |
A UIT buys a fixed portfolio of securities, chosen by professional money managers to meet a stated investment objective (e.g., growth or income).
While UITs are not actively managed, they are actively monitored/supervised for changes in credit and rating of the underlying securities. |
– Redeemable on any day the market is open at units' current price (NAV); a three-day settlement period applies.
– Minimum purchase varies.
– Typically offer some method of automatic reinvestment of capital gains and dividends.
– Transparent — because holdings are not actively traded, investors know what’s in the portfolio from inception to termination date.
– Liquidation of the assets on termination date can create a taxable event for the investor.
– Sales charges and expenses vary. |
