What is an ETF? Part 1 of 3 (video)

Summary of video: What is an ETF? Part 1: Open Ended Mutual Funds Key points from this video: You don’t need to learn about closed end funds, but his discussion might help you understand what it means that most mutual funds are open-ended. Closed-end funds are also similar to ETFs, so this may help you understand that. Don’t concern yourself with closed-end funds too much because there is no circumstance where this would be a better idea than low-cost index funds that are open-ended. Mutual funds are regulated by the Securities and Exchange Commission (SEC) in the U.S. Fund managers earn a percentage of the assets under management. An open-ended fund can dynamically grow or shrink. The net asset value (NAV) is the total value of the assets in the fund divided by the number of shares. An open-ended fund doesn’t invest 100% of investors’ money. It keeps some in cash to handle those who wish to sell sharess Link to next video: What is an ETF? Part 2: Closed Ended Mutual Funds Link to last video: What is an ETF? Part 3: Exchange Traded Funds   Transcript of video: What is an ETF? Part 1: Open Ended Mutual Funds Let’s say Pete over here thinks that he’s a pretty good investor, so what he does, or he has an idea that says look I’m going to create a corporation. I’m going to get a bunch of people to contribute money to that corporation. Then I’ll manage that money, and maybe I’ll take a little fee for myself, so that I can maybe hire some analysts or get some computers, or get some office space. What he does is he sets up a corporation. Let’s say he sets up a corporation right over here. Let’s say the way he first sets up the corporation, let’s say he just has four shares. I’m making the number really small, just to make the drawing and math easy; this wouldn’t be realistic. Normally it would be something in the hundreds or thousands of shares, or maybe even more than that. Let’s say it has four shares, and let’s say all of the four shares are owned by Pete initially, just to simply the explanation. He puts in $400, $400 into this corporation. Another way to think about, in exchange for him putting $400 into this corporation he gets four shares, or each share is worth $100, each of these shares right over here. What he does is he registers this corporation, and I’m talking about a U.S. specific case, but there’s similar types of organizations in other countries. He registers this organization right over here with the U.S. S.E.C., Securities and Exchange Commission. He also registers himself with the S.E.C., or even better, he registers a management company that he runs with the S.E.C. Let’s call it Pete, Inc., is a corporation he starts off that he also registers with the S.E.C. When he registers with the S.E.C. he tells them that look […]

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