Investment Funds
Both mutual funds, or open-ended investment companies (the American name) and unit trusts (the British name) are legal constructions which permit the pooling of a large number of small unequal amounts of money belonging to different individuals in a common fund to be invested by skilled managers. Pooled investments can take a variety of forms, exemplified in the confusion which continues to arise in British discussion between unit trusts and investment trusts. The latter involve an investment vehicle with share capital fixed in amount and are referred to in the US as a «closed-ended investment company». British unit trusts are the equivalent of the American «open-ended mutual funds» and issue new units or shares every time they receive additional money from subscribers. The most common form of closed-ended fund is a company which uses the funds provided by shareholders to «invest» in the shares (stocks) of other companies. Despite a fixed share capital, «gearing up» of ordinary shares by borrowing is possible, thereby making the risk - expected return combination facing shareholders different from that of the asset portfolio. Consequently, because of gearing and the forces of supply and demand for the closed-ended investment companies’ fixed stock of shares, the market price of closed-ended funds’ shares can be greatly above or below the market value of the underlying share portfolio. This cannot happen with open-ended funds, because gearing is prohibited by charter and the number of units or shares is not fixed. Being open-ended, the supply of units, i.e. capital, can be increased or decreased according to demand. If unitholders wish to dispose of all or some of their units, the manager of the fund can simply cancel the units and sell off the corresponding assets. Accordingly, the market value or price of the units will, within set limits, vary directly with the market value of the securities represented by those units. By allowing individuals to purchase a share of a managed portfolio, mutual funds perform a number of functions which we group under three headings. First, there is what we have called the «brokerage» function, in which information is processed and collected for resale. Left to their own devices, people would need to gather information about the various securities, assess the inherent risks, devote time to monitor and evaluate new information on an ongoing basis, and then undertake all the administration involved in making alterations to the composition of their portfolio. The fund arrangement centralizes the collection and the processing of the information and the administration. Subscribers acquire the information and professional investment management at a price - the management fee - but are left to assess the ability of the managers of the various funds. Second, diversification is made possible by the size of the fund. This is the factor which prompted the formation of the first British pooled fund in 1868, its prospectus making clear that the purpose was «to secure for the investor a degree of diversification in his investment portfolio which a single individual is unable to obtain unless he is extremely wealthy». Third, units can be readily encashed, and open-ended funds are more liquid than direct shareholdings. This comes about partly from the lower variability of the market value of a well-diversified portfolio, but mainly from the nature of fund arrangements. All pooled funds are, of course, owned by the unit-holders, but they are held in trust and invested in the name of the trustee (normally a bank or insurance company), such investment being performed, for a fee, by the management company. Under the trustees’ supervision, the job of the manager is to invest and administer the funds, advertise and promote the units and conduct a market in the units. This market is a distinctive feature of mutual funds. The main differences between unit trusts any investment trusts are: - Unit holders in authorized unit trusts have an extra measure of protection arising from Department of Trade and Industry supervision and the fact that most trustees are major banks or insurance companies. It is possible to buy units with regular savings of very small amounts; units can be acquired through a unit-linked insurance policy; unit trusts distribute their income on regular (normally half-yearly) dates, dividend payment dates for investment trusts are less predictable; authorized unit trusts cannot invest in assets such as property, investment trusts are not so limited. - Units may be bought from and sold to the managers without going through The Stock Exchange. The managers must buy units back if an investor wishes to sell. Shares in investment trusts are sold through The Stock Exchange. With some smaller investment trusts, the market in the shares is very small and it may be difficult to find a purchaser. - Unit prices are calculated according to the rates laid down in the trust deed (as approved by the Department of Trade and Industry) and are directly related to the value of the underlying assets. The price of the investment trust shares is determined by supply and demand and it is usual to find prices below net asset value. 1. Answer the questions:
1. What are the differences between a unit trust and an investment trust? Which is more profitable? 2. What kind of restrictions are imposed upon unit trusts? 3. List the managers’ responsibilities both in unit and investment trusts. 4. How does the open-ended fund compensate its unitholders in case they wish to dispose of their units? 5. What are the advantages of mutual funds over individual investments? 6. What is meant by asset portfolio? 2. Match each of the words on the left with the correct explanation on the right:
3. Complete the text by inserting the following words in the gaps:
block of units, government investments, management fee, share capital, subscribers, trustees, unit holders, units
A unit trust collects together the savings of a large number of......(1) and invests these funds in stocks and shares on behalf of them jointly. Each subscriber’s capital is spread over a wide range of industrial and/or......(2) in a way that would be impossible if he or she were directly to invest any modest funds. The investor is allocated......(3) according to the amount of the subscription, and the daily valuation of units is calculated and published on the basis of the total worth of the trust funds divided by the number of units issued. Investors may subscribe to the fund for......(4) or, in many cases, agree to subscribe a regular sum each month. The income of the unit trust is distributed to the......(5) in either of two ways - either by half-yearly payments to their bank accounts (income units) or by increasing the holders’ unit holdings (accumulation units). If the unit holder wants a regular income he will obviously choose a unit trust fund that provides for the former, whilst someone who is looking for capital growth will choose a unit trust which distributes the income as additional units. A unit trust is not a company and has no......(6) of its own. The managers, however, are separate companies who charge a......(7) for the day-to-day running of the trust with an obligation to invest the unit holders’ funds as wisely as possible in order to produce a good return and capital growth. The.......(8) are in the main banks and insurance companies. Some of the large retail banks now run their own unit trusts through subsidiary or associated companies and derive an income from the management charges.
4. Make the written translation of the text into Russian: Finance companies acquire funds by issuing commercial paper or stocks and bonds and use the proceeds to make loans (often for small amount) that are particularly suited to consumer and business needs. The financial intermediation process of finance companies can be described by saying that they borrow in large amounts but often lend in small amounts - a process quite different from that of commercial banks, which issue deposits in small amounts and then often make large loans. A key feature of finance companies is that compared to commercial banks and thrift institutions they are virtually unregulated. States regulate the maximum amount they can loan to individual consumers and the terms of the debt contract, but there are no restrictions on branching, the assets they hold, and how they raise their funds. The lack of restrictions enables finance companies to better tailor their loans to customer needs than banking institutions. There are three types of finance companies. Sales finance companies make loans to consumers to purchase items from a particular retailer or manufacturer. Sales finance companies compete directly with banks for consumer loans and are used by consumers because loans can frequently be obtained faster and more conveniently at the location where an item is purchased. Consumer finance companies make loans to consumers to buy particular items such as furniture or home appliances, for home improvements, or to help refinance small debts. Business finance companies provide specialized forms of credit to businesses by purchasing accounts receivable (bills owed to the firm) at a discount; this provision of credit is called factoring.
5. Translate the text into English: Прямой противоположностью спекулятивным фондам является разновидность доходных фондов, ориентированная на краткосрочные вложения - фонды денежного рынка. Эти фонды специализируются на краткосрочных обязательствах государства (казначейские обязательства), депозитных сертификатах банков и векселях наиболее надежных фирм. Некоторые из них вообще инвестируют средства исключительно в казначейские обязательства. Для поддержания ликвидности такие фонды традиционно вкладывают средства лишь в те активы, которые удовлетворяют «правилу 180 дней», т.е. срок погашения этих активов не должен превышать 180 дней. Следствием такой политики является чрезвычайно высокая надежность и ликвидность вложений в эти фонды с одной стороны, и весьма невысокая доходность с другой. Степень надежности и ликвидности фондов денежного рынка такова, что некоторые организации, ведущие денежные счета клиентов, держат остатки средств по счетам в таких фондах, что не мешает клиентам выписывать чеки и снимать наличные с таких счетов. Разброс по доходам фондов денежного рынка невелик и в среднем эта доходность колеблется у всех фондов одновременно. Этот факт объясняется, в первую очередь, тем, что доходность фондов денежного рынка привязана к доходности государственных обязательств, а те, в свою очередь, к ставке центрального банка или заменяющего его органа. Можно ожидать, что практически все фонды денежного рынка будут увеличивать или уменьшать свою доходность одновременно и в одном и том же масштабе. С другой стороны, такие фонды, вкладывающие средства в разных странах, могут давать существенно различные результаты в соответствии с поведением национальных валют и ставок центральных банков.
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