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Guide to the Investment Act 1940

Guide to the Investment Act 1940

What is the Investment Act 1940?



• The Investment Act 1940, or better known as the Investment Company Act, was a formal act of Congress that in essence, formed the backbone of the financial regulatory platform in the United States of America. Passed as a United States Public Law on August 22, 1940, the Investment Act 1940 was a set of extensive rules issued by the Securities and Exchange Commission to prevent fraudulent and misguided behavior in the financial markets. 
History of the Investment Act 1940:


• Following the creation of the mutual in 1924, investors, as a result of the success of the mutual fund, encouraged innovation in the market. Five years after the creation of the fund however; the Wall Street Crash of 1929 rocked investor confidence. In response to the economic calamity, the United States Congress created the Securities Act of 1933 and the Securities Exchange Act of 1934 to better regulate the stock market and the securities industry as a whole. Given the destruction caused by the Great Depression and more specifically the Stock Market Crash of 1929, legislation aimed to protect the interest of the American public and re-instill their confidence in the market.
• In 1940, Investment companies were still considered in infantile stages. To strengthen investors’ confidence in various securities and public companies and to protect the public interest from new formations of securities, Congress passed the Investment Act 1940.
• When passed, the Investment Act 1940 established separate standards by which investment companies were to be regulated. The Investment Act 1940 defined and regulated all investment companies, including the newly-formed mutual fund market. Prior to the passing of the Investment Act 1940, mutual funds were not only deregulated, but not even defined. 
Effects of the Investment Act 1940:
• The Investment Act 1940 aims to mitigate and eradicate all conditions which adversely affect the national public interest and the overall interest of investors in the market. More specifically, the Investment Act 1940, regulated conflicts of interest in securities exchanges and investment companies. The investment Act 1940 also protected the public by legally requiring disclosure of financial materials concerning an investment company.
• Additionally, the Investment Act 1940 placed restrictions on mutual fund activities, including their ability to engage in short selling. That being said, the Investment Act 1940 did not institute provisions for the United States Securities and Exchange Commission to make specific judgments concerning the supervision of an investment company’s actual investment decisions. The legislation; however, did require such companies to publicly disclose investment information and information regarding their own financial health. 
Who does the Investment Act 1940 apply to?
• The Investment Act 1940 applies to all investment companies, but will provide exemptions to several types of investment companies from the act’s coverage regulations. The most common exemptions, which are found in various sections of the act, are not placed on Hedge Funds for example. The Investment Act 1940 is a Federal Law and is therefore not to be interpreted individually among the states. 

Fidelity Investments: A Brief Summary

Fidelity Investments: A Brief Summary

Fidelity Investments Explained:



• Fidelity Investments is one of the largest mutual fund and financial services institution in the world. Fidelity Investments manages a large family of mutual funds, investment advice services, as well as, provides distribution services to both institutional and private investors. Additionally, Fidelity Investments acts as a discount brokerage service, retirement service, wealth management agency, life insurance providers and securities execution and clearance house.
Fidelity Investments Research Division:


• Fidelity is a privately held and managed company that was originally founded by Edward Johnson in 1946. The company is a fully-functioning investment institution that operates in a conjunctive fashion; Fidelity Management & Research Company, the investment management division of Fidelity Investments, acts as the primary investment adviser for the company’s family of mutual funds. 
• The Fidelity Management & Research Company operates with three divisions: the Equity branch, located in Boston, the High-Income department, also located in Boston and a Fixed-Income branch, located in Merrimack, New Hampshire. The company’s numerous subsidiaries service as transfer agents and distributors for the entire Fidelity Investments mutual fund family. 
• The Fidelity Management & Research Company serves more than 20 million investors through a number of institutional and individual accounts. With more than 500 different mutual funds, the company operates with roughly $3.4 trillion in assets. 
Fidelity Investments’ Mutual Funds:


• Fidelity Investment’s largest equity mutual fund is Contrafund, which currently has over $70 billion in assets, making it the largest single-manager mutual fund in the United States. 
• Magellan fund is another large, primarily equity-based, mutual fund offered by Fidelity Investments. The Magellan fund, which used to be the world’s largest mutual fund, is managed by Harry Lange. 
Other services offered by Fidelity Investments:
• Through its subsidiaries, Fidelity Investments, offers a number of services to its corresponding broker-dealers, institutional investors and registered investment advisors, including a number of brokerage clearing firms, back office support and software companies. 
• In addition to its brokerage and mutual fund programs, Fidelity Investments also maintains a strong presence in the outsourcing and Human Resources business. More specifically, Fidelity Personal, Workplace and Institutional Services is the premiere provider of 401(k) retirement plan services in the United States. The Fidelity Personal, Workplace and Institutional Services administers nearly $1 trillion it defined contribution assets to workers in the nation. 
• Other services offered by Fidelity Investments includes: pension administration, payroll, HR record-keeping services and health & welfare administration.

ETF: What you must know

ETF: What you must know

What is an ETF?


• An ETF or Exchange-traded fund is an investment fund traded on a stock exchange like an ordinary equity or stock. An ETF is an agglomeration, which holds numerous assets, such as commodities, bonds or stocks. The majority of ETF’s will track an index or a bundle of popular assets, such as the S&P 500; an ETF will trade close to its net asset value over the course of a trading day and is viewed as an attractive investment due to its low cost, stock-like features and tax efficiency. 
Who Buys and Sells ETFs?
• In general, only authorized market participants, such as large institutional investors, will buy or sells shares of an ETF. When managers of these funds purchase an ETF they do so in a direct fashion, by transacting with a fund manager. Given the characteristics of an ETF, the majority of purchases are made in creation units, or large blocks of tens of thousands of shares. Furthermore, when purchased, an ETF will be bundled with an underlying bundle of assets.
•  Authorized participants may wish to invest in an ETF over the long-term, but will most often act as a market maker to provide liquidity of the ETF shares and to help ensure that their market price is proportional or equal to the net asset value of the underlying assets. Other common purchasers or sellers of an ETF will include retail brokers, although these individuals will typically transact in the secondary market. 
Basic Characteristics of an ETF:
• An ETF combines the tradability features of a closed-end fund and the valuation features of a unit investment trust or mutual fund. These characteristics enable an ETF to be bought or sold at the end of each trading day for its respective net asset value. 
• An ETF enables public investors to purchase an undivided interest in a pool of securities and other assets in a fashion akin to a traditional mutual fund; however, shares of an ETF may be purchased or sold throughout the day like a stock. Furthermore, unlike a traditional mutual fund, an ETF will not be sold or redeemed by their individual shares at their net asset values. Instead, a financial institution will purchase and subsequently redeem an ETF directly from the fund itself, but only in large quantities. 
• The ability to purchase and redeem large quantities of an ETF trigger an arbitrage mechanism that is solely intended to minimize the potential for deviation between the net asset value of the ETF shares and the market price. 
• An ETF is a transparent investment; institutional investors will know exactly what each individual asset’s portfolio will consist of. In the United States, the majority of ETFs are offered as an open-ended management investment company—the same structure used by money market funds 
and mutual funds. 
How is an ETF Regulated?
An ETF must be registered, according to the Securities and Exchange Commission, as an open-end management investment company. As a result, the ETF must comply with following regulations:
• The ETF must issue or redeem creation units in exchange for the deposit of basket assets whose current value is disseminated per share by a national securities exchange at regular trading intervals throughout the day
• The ETF must identify itself as an ETF in any sales literature
• The ETF must issue shares that are approved for listing and trading on an exchange system
• The ETF must disclose, each business day, the net asset value and closing market price of the fund’s shares

Money Market vs. Mutual Fund

Money Market vs. Mutual Fund

What is a Money Market Investment?


A money market is a component of the broader financial markets. Money markets are short-term assets involved with short-term borrowing and lending. A money market investment possesses a maturity date of one year or shorter. 
Trading in money markets, will involve investments in commercial paper, Treasury bills, bankers’ acceptances, short-lived mortgage and/or asset-backed securities and bankers’ acceptances. 
Money market participants will include financial institutions and broker dealers who wish to borrow or lend to fund the global financial system. Investments in this field contrast with the capital market, or longer term-funding strategies, which are typically supplied through the transfer of bonds and/or equities. 
 The core of the money market consists of interbank lending; banks borrow and lend to each other using repurchase agreements, commercial paper and similar financial instruments. 
What is a Mutual Fund?
Mutual funds are professionally managed collective investments. A mutual fund will pools capital from a number of investors and then buy an assortment of short-term money instruments, stocks, bonds and/or other securities. These investments are conservative in nature; a mutual fund is a properly-diversified investment.
A mutual fund, in the United states, must be registered with the Securities and Exchange Commission. A mutual fund, when registered, may be overseen by a board of directors or organized as a corporation, trust or board of trustees. 
A mutual fund’s board is responsible for ensuring the effectiveness of the investments latent in the mutual fund. The fund manager, in turn, is responsible for trading (buying and selling) the fund’s pool of investments. The fund manager must build an investments strategy that is properly diversified and adheres to the fund’s investment objective. 
Mutual funds, so long as they comply with certain requirements established by the Internal Revenue Code, are not taxed based on income generated. To avoid this taxation, a mutual fund must diversify its investment pool, distribute income annually to their investors, limit ownership of voting securities, and generate income through their investment strategy.
Money Market vs. Mutual Fund:
When analyzing a money market vs. mutual fund, you must understand that all money market funds are types of mutual funds that invest specifically in money market instruments, such as banker’s acceptances, commercial paper, Treasury bills, federal funds and certificates of deposit. 
The  mutual fund, in a general sense, is a type of investment pool that will invest according to a specific strategy. This style, which is developed by the fund manager or board, creates a dichotomy between the two investments, because the mutual fund can invest in an assortment of financial products to match the specific funds’ goals. 
Money market funds are regarded as more conservative investment types. Because of this increased safety, the money market fund will yield a lower annual percentage rate of return, than a mutual fund. Some money market funds will be particularly conservative and only invest in government funds; these fund have AAA ratings and offer very low interest rates. Furthermore, unlike a mutual fund, all money market investments are covered by FDIC insurance. 
Time is considered–when analyzing a money market vs. mutual fund—a defining characteristic in the two investment options. As stated before, all money market accounts mature in one year or less; this time-frame contrasts from a mutual fund, which enables an investor to hold or sell the investment for as long as they please. Additionally, in money market vs. mutual funds, an MMA will limit the number of withdrawals the holder can process in a year. 

Guide to Finding the Best Mutual Funds

Guide to Finding the Best Mutual Funds


Brief History Concerning Mutual Funds:
The Investment Company Act of 1940 established three forms of registered investment companies in the United States: unit investment trusts, closed-end funds and open-end funds. The term “mutual fund” may refer to all three of these types of registered investment companies; however, it is more closely related and more commonly used to refer solely to an open-ended investment. 
Tips on finding the Best Mutual Funds:
Although stock brokers and investment professional will try and sell what they call the “best mutual funds”, the truth is that best mutual funds for someone else, may not be the best for you. That being said, there are a few indicators and tools that can help you find the best mutual funds for your specific needs. 
When evaluating what the best mutual funds for your specific needs you must first determine what kind of investment you want, what you would like to achieve, how much money you are able to invest, how long you plan to invest and what your risk aversion is. When you have figured these key components out, you should analyze the best mutual funds or top 20 lists published in all financial periodicals. These lists will offer a brief description of the best mutual funds and their coordinating investment strategies. 
When you are researching the best mutual funds, investigate why these funds are represented on this list; analyze the respective risk factors, returns and costs associated with each. In addition to analyzing these variables find out all you can about the respective fund managers: how long has the individual been managing the fund and which other funds has he/she managed in the past. 
You must also research the companies in which the best mutual funds invest in. Ensure that none of these assets violate your ethical or moral standards. Furthermore, analyze the volatility associated with each fund; high rewards typically come with high risks.