Investment Companies

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Open-end investment companies engage in some controversial practices, such as collecting a so-called "loading charge" that can prevent smaller investors from seeing a return on their investment for quite some time. Closed-end companies are seen as a more conservative investment, but the long-term returns are generally lower.

Since shares are being continually bought and sold, the open-end companies appraise their shares twice daily. As it requires some sort of sales organization or distributor to sell the shares, it is easily seen that the selling price must include this expense in some form as a charge over and above the net asset value; this amounts to approximately 6 to 9 per cent and is commonly called the "loading charge," although there are a very few funds which do not make such a charge.

Many heated arguments are fostered by the use of this "loading charge" and some investment counselors maintain that this "eats up" the earnings for the first few years and that the investor receives nothing as an immediate return from his investment; they add that ordinary listed stocks of good quality may be bought at a much lower cost and will yield some immediate return. There is much truth in such an assertion, but the mutual-fund boosters point out that the surcharge is really a payment for management, which latter is the very reason why the investor is purchasing the open-end shares in the first place.

Open-end funds may well be classified according to type, since each attempts to achieve a certain objective.

The bond fund, as the name indicates, invests its funds entirely in a portfolio of bonds, usually of good grade; such a fund is characterized as being quite conservative since safety of principal is the main objective, which entails a low rate of return. Examples: Keystone Custodian Bl (high grade) and B2 (medium grade), Bond Fund of Boston, Manhattan Bond Fund, Group Securities General Bond Fund.

The balanced fund is one that maintains a goodly portion of its resources in bonds and/or preferred stocks and places the remainder in common stocks. The former commitments are defensive and conservative, and their proportion is usually varied within certain limits depending upon the judgment of the management. The balanced fund is considered by many as a good compromise between strong conservatism and rather considerable speculation. Examples: Eaton and Howard Balanced; Scudder, Stevens and Clark Balanced; Boston Fund; Wellington Fund.

The diversified common stock fund comprises the largest group in total membership. All invest in common stocks, but there is a wide degree of difference in the approach. Some specialize in "blue chips," some specialize in growth stocks, some confine themselves to low-priced shares, some stress certain industries, such as chemicals or petroleum; still others may stress a certain business segment and the possibilities of growth within it (e.g., electronics). Examples: Axe-Houghton Stock Fund, Broad Street Investing Corp., Commonwealth Stock Fund, Loomis-Sayles Mutual Fund, Science and Nuclear Fund.

We may note that the chief purpose of many funds is income; for others, capital appreciation; and for still others a bit of both.

The closed-end investment company is one that has a specific amount of capital and whose securities resemble those of any other business corporation (bonds, preferred and common stocks); its business is rather unusual since it deals exclusively in the securities of other corporations for income and for profit. The shares of closed-end companies are usually common stocks, bought and sold through the stock exchanges or the over-the-counter market. Stockholders in a closed-end company are able to sell their shares for what they will bring at any time, just as the shares of other corporations are traded daily.

Whether one chooses to invest in an open- or closed-end company, one will see various rates of return on one's investment. It is up to the investor and his adviser to decide which is right for the individual.

This article is a small snippet from www.stockandbonds.org

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