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Group 1 AUG. 17, 2009

INVESTMENT. PRODUCTS. Group 1 AUG. 17, 2009. CONTENTS~. MUTUAL FUNDS ANNUITIES SELLING INVESTMENT PRODUCTS RISK AND RULES. MUTUAL FUNDS~.

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Group 1 AUG. 17, 2009

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  1. INVESTMENT PRODUCTS Group 1 AUG. 17, 2009

  2. CONTENTS~ • MUTUAL FUNDS • ANNUITIES • SELLING INVESTMENT PRODUCTS • RISK AND RULES

  3. MUTUAL FUNDS~ • A collection of stocks and/or bonds where group of people invest on different financial securities earning income by dividends payout from stocks, interest on bonds, and resale of fund holdings when the shares increase in price.

  4. MUTUAL FUNDS~ ADVANTAGES~ • The primal advantage of mutual funds is the professional management of investor’s money. Investors normally have not enough time to manage their portfolios and mutual fund is good way of monitor investments at small cost. • Mutual funds invest in various stocks or bonds which investor can diversify investments rather than holding individual investment only in few stocks.

  5. MUTUAL FUNDS~ ADVANTAGES~ • Investors pay smaller transaction cost since stocks are purchased in bigger amount. • Mutual funds are highly liquid since shares can be converted into cash at anytime.

  6. MUTUAL FUNDS~ DISADVANTAGES~ • Hired professional managers are not always earning every single transaction and sometimes the fund will lose money. Even so, the management fee is still paid as cost. • Since Mutual Funds invest in many different stocks, there is a possibility of having dilution effect making few high returns do not make difference in overall returns. *Dilution - A reduction in earnings per share of common stock that occurs through the issuance of additional shares or the conversion of convertible securities.

  7. MUTUAL FUNDS~ TYPES OF MUTUAL FUNDS~ • EXCHANGE-TRADED FUNDS • HEDGE FUNDS

  8. MUTUAL FUNDS~ TYPES OF MUTUAL FUNDS~ EXCHANGE-TRADED FUNDS - The performance of fund tracks underlying index which the fund is designed to replicate. The difference from mutual fund to ETF is that ETFs have relatively lower cost due to passive management used. • Examples of ETFs: • SPDR S&P 500 ETF (AMEX:SPY) • Silver ETF

  9. MUTUAL FUNDS~ TYPES OF MUTUAL FUNDS~ HEDGE FUNDS- The portfolio of investments is being managed aggressively by means of using advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets -Usually hedge funds are illiquid since usual term of investment is more than one year. Examples of Hedge Funds: • Soros Fund Management LLC • Stark Investments • Goldman Sachs Asset Management

  10. MUTUAL FUNDS~ Ways of involving in the business~ • PROPRIETORY FUNDS (HOUSE-BRAND) - bank or brokerage firm that distributes the fund is also acting as an investment advisors for the fund Example: Evergreen Investments • NON-PROPRIETORY FUNDS (THIRD PARTY) - managed outside by independent managers and sellers of the funds are independent from managers of the fund. The advisors or managers of funds gives unbiased advices when recommend these funds. Example: Vanguard Group

  11. ANNUITIES~ • A financial product sold by financial institutions usually insurance companies that is designed to accept and grow funds from an individual and pay out a stream of payments to the individual at a later point in time. • These are primarily used as a means of securing a steady cash flow for an individual during their retirement years.

  12. annuities~ TYPES OF ANNUITIES~ • FIXED ANNUITY • VARIABLE ANNUITY • EQUITY INDEX ANNUITY

  13. ANNUITIES~ TYPES OF ANNUITIES~ FIXED ANNUITY - An insurance contract which the insurance company makes fixed payments to the customer over the life of the annuity contract. • This contract generates continuous level of income stream to the customer or to his or her beneficiaries. • Customers pay no taxes until he or she begins to receive the promised stream of income.

  14. ANNUITIES~ TYPES OF ANNUITIES~ FIXED ANNUITY CHARACTERISTICS: • Guaranteed Principal • Guaranteed Minimum Interest Rate • Annual Withdrawals • Surrender Period and Surrender Charges • Death Benefits • Income Options • Premium Requirements

  15. ANNUITIES~ TYPES OF ANNUITIES~ • VARIABLE ANNUITY - This contract allow investors to invest in a lump sum of money in a basket of stocks, mutual funds, or other investments under a tax-deferred agreement, but there is no promise of guaranteed rate of return. • If prices of assets decline in value = customer receives less income than expected • If prices of assets appreciate in value = customer receives larger income

  16. ANNUITIES~ TYPES OF ANNUITIES~ • EQUITY INDEX ANNUITY - This is a contract which combines the features of both fixed and variable annuities. • This is an annuity that earns interest that is linked to a stock or other equity index. Depending on how those stocks fare will determine the amount of gain. • If the stocks that the equity index annuity is invested in give high returns, customer will not receive the full returns but just a percentage.

  17. SELLING Investment PRODUCTS~ • Sale of low-risk money market mutual funds (MMMF) is more successful than long-term bond mutual funds and stock; • Traditional deposits are more attractive and less costly than new investment products because of lowered regulation ; • Value of products is market determined.

  18. RISK and RULES~ RISKS~ • Price of an investment product is sensitive to market factors. • An increase in interest rates lowers the value of product • As recourse, holder may file legal charges due to drop of value.

  19. RISK and RULES~ RULES~ • The customer must be fully informed which investment products are insured by the Philippine Deposit Insurance Corporation (PDIC). • The bank shall notify the potential customer that these products are subject to investment risks. • The customer must be told that investment products are not deposits and not assured by the bank. • Important documents that are required by the BSP and SEC shall be publicly available in the office where investment products are sold. • The management shall make sure that it complies with the rules laid out by regulators to avoid grave problems. • The offering entity must offer a customer an investment product that is appropriate to his needs.

  20. REFERENCES~ • Peter, R. S., & Sylvia, H. C. (2008). Bank Management & Financial Services, Seventh Edition. New York: McGraw-Hill/Irwin. • http://www.investopedia.com/university/mutualfunds/mutualfunds.asp • http://www.investopedia.com/university/exchange-traded-fund/ • http://www.investopedia.com/articles/exchangetradedfunds/08/etf-mutual-fund-difference.asp • http://www.investopedia.com/university/exchange-traded-fund/etf3.asp • http://www.investopedia.com/terms/s/silver-etf.asp • http://www.linkedin.com/companies/soros-fund-management • http://www.starkinvestments.com/ • http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=5629964 • http://www.investopedia.com/articles/mutualfund/08/proprietary-mutual-funds.asp • http://www1.evergreeninvestments.com/eicom/public/content/About_Us.jsp • https://personal.vanguard.com/us/content/Home/WhyVanguard/AboutVanguardWhoWeAreContent.jsp • http://www.investopedia.com/terms/a/annuity.asp • http://articles.directorym.com/Fixed_Deferred_Annuity_Investments-a939336.html • http://articles.directorym.com/Equity_Index_Annuities-a964191.html • http://www.investopedia.com/terms/a/annuity.asp • http://articles.directorym.com/Fixed_Deferred_Annuity_Investments-a939336.html • http://articles.directorym.com/Equity_Index_Annuities-a964191.htm • http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=386

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