Understanding Right Issue

Right issue is simply defined as right to buy something first, the right to decide whether or not to buy something before it is offered to other potential buyers. In the term of financial management, right issue is related to the business’s strategy to financing their business. We know that there are several ways for the company to get the money to operate their business. Issuing stock through IPO, borrowing to the financial institution, and own equity are several ways we meant.

As the definition above, right issue means right given by company to the current stockholders whether or not to buy new stock issued before it is offered to other potential buyers. The objective is keeping the percentage of possession by stockholder, besides reducing the cost of issuing new stock.

This kind of corporate action makes duty or consequence for the company. Company must maintaining and keeping the stock profitability to its stockholders. The stock must give profit both dividend and capital gain to the outstanding stockholders. Company has to show its best performance by its financial report and create good corporate action in the market. If the stock is profitable, stockholders will apply the proposal from the management to issuing right issue, buying the new stock, or give not too bad reaction for the stock price volatility.

Right issue is relatively negative signal for the market. Why? Because existing stockholder often ask or being offered lower price than current market price, so the market price is going down.

Investment Expenses in Mutual Funds

The expenses of investing in mutual funds consist of various kinds: subscribtion fees, redemption fees, front-end loads, management fees, and distribution fees (also known as 12b-1 fees). All expenses are expressed in percentage of the net assets of the funds. Here are some explanation about the fees:

1. Subscribtion fees

Several mutual funds charged investor in percentage of amount invested in the first time investor subscribe their fund.

2. Redemption fees

Redemption fee is usually levied on shares held for less than a specified period. Some mutual funds don’t charge redemption fees for switching the asset into other mutual funds products in the same investment manager.

3. Management fees

The management fee for the fund is usually synonymous with the contractual investment advisory fee charged for the management of a fund's investments.

4. Distribution fees

Distribution fee is a charge on current shareholders to cover the costs of advertising,

promotion, selling, and other activities.

All those expenses are important considerations for investor who wants to enter mutual funds instruments. Once investors understand the expenses they faced, investors could decide where they should place the funds and assess which products that competitive than others.

Evaluating Mutual Funds Performance

Mutual Funds Performance is commonly be measured by “rate of return”. The rate of return on a mutual fund investment for a period of one year, for example, is calculating difference in Net Asset Value (NAVt–NAVt–1) and adding the income and capital gains distributed during the year and dividing the sum by the NAV at the beginning of the investment date. The following describes the calculation of return for no-load funds:

where R represent rate of return, i represent income, and c is capital gains. The performance of a mutual fund is often compared with the performance of a benchmark portfolio that is selected to reflect the investment risk level of the fund’s portfolio to see whether the mutual fund had a superior performance. Some of benchmarking portfolios are S&P 500, NASDAQ, NYSE, or other index depends on the type of mutual funds.

Example of graphical results of mutual funds performance comparation is presented below:

Read Also:

1. www.wikipedia.org/mutual_funds

2. Encyclopedia of Business and Finance (Kaliski, 2007)