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Investment Policy Advantages And Disadvantages

3370 Words14 Pages

Introduction
The initial stage for the selection of an investment strategy requires the formulation of an investment policy statement. The policy ought to include the particulars of the investor, their liquidity requirements, desired risk and return profiles, tax implications and the timing of returns and reinvestments. It is up to the investment manager to utilize this statement and use and updated version of the statement at least once each year to evaluate the requirements and make an optimum investment decision based on the statement. Several investment options are available for the investors nowadays. Investment is a risky venture and the investors want to make a profit as well as invest in a low risk venture. For this, financial institutions …show more content…

Tax Advantages and Disadvantages

ETFs offer tax advantages to investors. As passively managed portfolios, ETFs (and index funds) tend to realize fewer capital gains than actively managed mutual funds. ETFs are more tax efficient than mutual funds because of the way they are created and redeemed.
No Investment Minimums - Several mutual funds have minimum investment requirements of $2,500, $3,000 or even $5,000. ETFs, on the other hand, can be purchased for as little as one share.
Transparency Because of the utter lack of transparency in the mutual fund industry, it’s not uncommon to be holding several apparently different mutual funds that actually hold some of the same stocks, causing you to be overexposed to single companies. Because of their simplicity, ETFs are far more transparent because, in essence, you own different market indexes.

Some problems an investor has to face for investing in mutual fund:
• Fees
• Less control over timing of recognition of gains
• Less predictable income
• No opportunity to …show more content…

Although both vehicles are passively managed, the ETFs generally have a significantly transparent nature of investment. As their name implies, they are traded on the bourses and are highly liquid. Their prices are quoted at a premium or discount of the Net Asset Value of the underlying asset (portfolio that is attempting to match either a specific index) based on how accurately the index is being replicated. As a result, their prices are quoted instantaneously with every trade being executed on them. The investor can simply liquidate their holdings at any time at the prevailing market rate and no market maker is necessary to guarantee the salability of the investment (Franklin Templation Investments,

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