Types Of Indirect Equity Investment
Types Of Indirect Equity Investment.
Indirect equity investment requires less supervision than does a direct investment. These investments involve a commitment of funds to an institution of some sort that in return manages the investment for the investor. Special types of indirect investments are given below:
Under some circumstances, employees are permitted to have certain portions of their salaries withheld by their employers for investment in variable annuities. The amount invested in the variable annuities is not taxable until it is withdrawn. Investor of such scheme may withdraw during retirement when he is in a lower tax bracket. It is also a device for deferring the payment of income taxes. The organization managing the annuity invests the proceeds of all participants in the plan of a portfolio.
Like insurance policy is another name of indirect investment when the policy is purchased from a mutual insurance company, the insured becomes an owner of the company.
Mutual funds, the popular name for open-end-investment companies sell and redeem their own shares. Owners of funds shares can sell them back to the company any time they choose. The mutual fund is legally obligated to redeem them .Investors purchase new shares and redeem their existing shares at the net asset value (NAV). The NAV of an investment company share is computed by calculating the total market value of the securities in the portfolio minus any trade payables and dividing by the number of the fund’s shares currently outstanding.
Unit investment trusts
It is an investment company that owns a fixed set of securities for the life of the company referring that the investment company rarely alters the composition of its portfolio during the life of the company.
Open-end investment companies
An investment company which is ready to purchase its won shares at or near their net asset value is called an open-end investment company. Commonly known as mutual funds, these companies also continuously offer new shares to the public for a price at or near their net asset value. The number of share outstanding of these types of companies changes on a daily basis as their capitalization is open.
Close-end investment companies
A close–end investment company does not stand ready to purchase its own shares if one of its shareholders sells them. Its shares are traded on an organized stock exchange through the presence of broker.