“Load” mutual funds are those which have a fee structure that includes a front-end or back-end sales charge. All funds have expenses, but not all funds have loads. Loads are sales charges that are part of the fee structure of a mutual fund. Each mutual fund will typically offer a few types of shares classes to its investors, and the main difference between the share classes are their fee structures. There are front-end loads, which come out of your initial investment and can be up to 5%. Continue reading...
A closed-end fund is a collective investment model where a company raises a fixed amount of capital through a share offering. It’s also known as a closed-end investment, and it trades on a stock exchange just like a stock. Closed-end funds that are managed generally tend to focus on a specific sector or segment of the market. What is an Open-End Fund? What Should I Know About IPOs? Should I Buy IPOs For My Portfolio? Continue reading...
An open-end fund is a collective investment product where the issuer can redeem or issue shares at any time. Most mutual funds are open-end funds. Since the issuers can redeem or issue new shares at any time, they can meet the needs of investors very fluidly - buying back shares if an investor wishes to sell, or issuing new ones if demand rises. A manager also has the option to ‘close’ an open-end fund if they feel the fund 06has grown too large to allow new investors. Most mutual funds start out as open-end funds. Continue reading...
An Asset-Backed Security, or ABS, are bonds or notes backed by financial assets. It is an example of “securitization.” The assets within the ABS generally tend to consist of different kinds of debt receivables, such as credit cards, auto loans, home equity loans, and so forth. Banks build portfolios of receivables in making loans and issuing credit, and then in many cases package these loans together and sell them to investors (known as “securitization”). Continue reading...
A high volume of loans issued to those who were unable to repay them, and a high volume of derivative securities traded on top of these loans, contributed to the subprime meltdown of 2007-2009. A large amount of collateralized mortgage obligations (CMOs) and other collateralized debt were owned by large institutions and investors as alternative high yield investments prior to the crash of 2007-2009. Continue reading...
The Federal Home Loan Bank Act was signed into law by President Hoover in 1932. The goal of the legislation was to make liquidity more accessible to banks for the purpose of making home loans, so that more Americans could acquire permanent residences. The bill established the FHL Bank system, which now consists of 11 FHL banks. The Federal Home Loan Bank Act of 1932 established the FHL Bank system, which is a co-operative banking network for banks and other lending institutions who make home loans. The FHL banks are owned by their member institutions, who purchase stock in the bank and are then permitted to take loans out from it, using that money to provide loans to customers. Continue reading...
Mutual funds that do not charge a front-end or back-end sales load are known as no-load funds. What are Load Mutual Funds? While no-load mutual funds do not require the investor to pay sales charges (i.e., commissions) when buying or selling that fund, it’s important to remember that nothing is free, especially in the world of financial services. The portfolio manager of the fund and his team of analysts still have their salaries, bonuses, retirement benefits, and so on, and fees are needed to pay for it. Continue reading...
An interest rate is a simple financial principle that’s been around for centuries, whereby a borrower has to pay for money borrowed. The interest rate is agreed to between the lender and the borrower, and there may be provisions under which the rate could change over the course of a loan. In simple terms, an interest rate is the cost of money. Continue reading...
Securitization is to turn an asset which would otherwise not be a liquid, tradable security, into one. Simply put, securitization turns assets into securities. The most common example when discussing securitization is mortgage-backed securities, in which the cash flow of interest and principal payments on mortgage loans has been pooled, cut up, and distributed for sale in the form of marketable securities which can be held by an everyday investor. The bank or institution who sold the mortgage-backed securities receives cash which they can loan out to more home-buyers. Continue reading...
The Federal Housing Administration (FHA) is to lenders what FDIC insurance is to savers; it protects lending institutions from mortgage defaults. By protecting lenders, the FHA was begun with the intention to stimulate the housing market. The FHA was established in 1934 in an effort to stimulate the construction and purchase of new homes by offering insurance protection to the institutions (banks and mortgage companies) who make mortgage loans. Continue reading...
Mutual funds come in many varieties, but here are some basics to keep in mind to help you find your way. While most people have definitely heard the term mutual fund, many people do not understand how they work and how to use them. With over 10,000 mutual funds available in the marketplace today, the average person may have a hard time selecting appropriate mutual funds for his or her portfolio, determining a good asset mix, and understanding all of the charges associated with buying, owning, and selling mutual funds. Continue reading...
The cryptocurrency community has opened up creative options for making money in the form of lending platforms. A few forms of lending exist for cryptocurrencies at the time of this writing. One way to do it is to make your funds available in a lending market facilitated by an exchange, such as Poloniex, where you can name your interest rate and allow other traders to use your funds for trading on margin. Continue reading...
A credit crunch is when access to liquidity dries up dramatically in rapid fashion, or becomes less accessible due to a spike in borrowing rates. Central banks will often step-in to try and curb the lack of liquidity by offering the markets access to cash at lower than market rates, in the event of a crisis. Perhaps the most famous credit crunch in history occurred in late 2007 and early 2008, when bank balance sheets became highly leveraged overnight due to mark-to-market accounting rules that were applied to the mortgage backed security portfolios on their balance sheets. Continue reading...
Bank Credit is the amount of loaned capital that an individual or business is capable of getting from a bank at a given time. This amount will be based on a series of evaluative metrics such as the total amount of assets an individual has, home equity, income, liquid net worth, work history, credit rating, and so forth. An individual can only borrow so much at a time, and, using these variables, a banker can essentially estimate how much credit could be extended that a given individual at that time. Continue reading...
The interbank rate is the average lending rate used between banks of comparable size and creditworthiness when they borrow money from each other. The Federal Funds Rate is the benchmark in America, while LIBOR (the London Interbank Offered Rate) is more prevalent elsewhere. These are indexes which are used to determine rates and terms for other financial instruments and swaps. The Prime Rate, or the rate banks will used for their most credit-worthy customers, is tied to the interbank rate but is slightly higher of course. In America the Federal Funds Rate is so called because the Central bank participates in the lending. This is sometimes called the overnight rate when it refers to money that is lent between banks overnight. Continue reading...
Asset-backed securities are bonds or notes that come in several forms, but they typically use the cash flows from debt repayment as the asset that backs them. The assets that back the bonds called asset-backed securities (ABS) can be basically anything with a fairly predictable cash flow, but debt repayment cash flows tend to be used the most. These include credit card debt, home equity loans, auto loans, student loans, and so forth. Continue reading...
In contrast to the term “home owner,” home debtor is reserved for those who will seemingly never be able to pay off the mortgage(s) on their home, or who have already defaulted. Most Americans live in homes that they pay on, but are still primarily owned by the bank that loaned them money. Banks have insurance to protect them against mortgage defaults. Home mortgage loans are the primary way that Americans by homes today. Continue reading...
This seems to be a better choice than debt settlement, and it may make payments easier. Debt consolidation allows people to pay one bill a month towards their debt obligation, rather than many, and it may also give them a lower interest rate payment. A debt consolidation company or bank can settle the outstanding debts of the individual; this settlement amount plus fees becomes the principal loan amount or a new loan, which will probably be designed to have lower payments than the individual was paying before consolidation. Continue reading...
An Accelerated Share Repurchase (ASR) is a method by which companies can buy back a significant amount of their outstanding shares with the help of an investment bank. By enlisting the help of an investment bank to accelerate a buy-back, a company can cleanly retire a large bulk of shares at once. These agreements have come into use in the last 10 years, and there is of course some variation in their composition. They fall under a category of buybacks known as structured buybacks. Continue reading...
A breakpoint generally refers to a level of investment at which the fee structure changes. For mutual funds, it can mean a level that triggers a reduced sales load. An investor can either hit the breakpoint at the time of original investment or in some cases can sign a letter of intent to reach a certain investment level and qualify for the reduced fee that way. There may be multiple breakpoints for an investment, with the fee falling at each one. Continue reading...