Question

1. Describe what an ETF is and explain how these funds combine the characteristics of both open-end and close-end funds. 2. Imagine that you've just inherited $20,000. Now you are faced with the “problem” of how to spend it. After some soul-searching, you decide to build a $20,000 mutual fund portfolio. Using actual mutual funds and actual quoted prices, come up with a plan to invest as much of $20,000 as you can in a portfolio of mutual funds. Be specific! Briefly describe your planned portfolio, including the investment objectives you are trying to achieve.

Answer 1

1.Exchange traded fund are a type of mutual funds which are tradable over the exchanges like any stock. The units of ETFs are traded like a normal stock. ETFs can be bought and sold during market hours . These ETFs combine both the traits of open ended and closed ended mutual funds as they can be sold during Market hours and can be held for longer duration as they offer dividend and capital appreciation facilities too.

2.I will invest 20000 in five mutual funds with a portfolio weight of 25% each.I will choose a balanced fund, A large cap fund, A small cap fund and A growth fund as I want to hold for long term and I want to gain from any sectoral appreciation.