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Postby rishabhhurkat » Wed May 04, 2016 7:38 am

Please explain the concepts of following with suitable examples:-

1.Closed-End Funds
3.Hedge Funds.

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Re: Equtiy

Postby edupristine » Wed May 04, 2016 12:19 pm

Hi Rishabh

A closed-Ended-Fund is a publicly traded investment company that raise a fixed amount of capital through an initial public offering.

Example: Suppose that an open-end income fund and goes public issues 10 million shares at $10 each, raising $100 million for the fund, which it subsequently invests in securities yielding 7% annually, or 70 cents per share in income, which in turn is paid out to investors. Now imagine that a closed-end fund issued the same number of shares at the same price, but after it went public, the share price of the closed-end fund fell to $8 while the NAV (cash value) stayed at $10. This represents a 20% discount, and the dividend, which started at 7 cents, and was originally a 7% yield is now providing a yield of 8.75% ($0.70 / $8.00 = 8.75%).
This is a much better yield than the 7% and represents a major potential advantage between an investment in a closed-end fund and one in an open-end fund. Note that investors were better off buying the closed-end fund after the discount to NAV moved to 20%.
2. ETFs-
An exchange traded fund is an investment fund traded on stock exchanges, like stocks, commodities, or bonds.

A hedge fund is an alternative investment vehicle available only to sophisticated investors, such as institutions and individuals with significant assets. Hedge funds use many strategies, including control, hedging and macroeconomics plays with commodities, currencies, and interest rates.

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