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A mutual fund was originally a financial tool used (and made available for) small investors. By small, I mean investors who didn't have a lot of money to buy into the stock market and diversify their investments accordingly. The mutual fund was a way for the average middle-class American to pool his money with other like-minded individuals and invest in a group of stocks (or bonds) and share in the gain or loss of the fund.

For years, mutual funds have been seen as the panacea for all

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

of the world’s retirement ills. If we needed somewhere to put our retirement savings, there is - we are told - no better place to be than the latest, greatest mutual fund. And, over the years, the mutual fund industry has changed to accommodate not only small time investors, but large ones as well. With the many changes; however, came many new problems. Today, mutual funds are riddled with problems that are not often discussed with the general public. Some of these problems include:

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

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The nature of a mutual fund places fund managers in total control of the fund's trading methods and investment objectives, not you. So, right off the bat, you have lost complete control over what you would like to invest in. Remember, the fund is just a “shell” for other financial instruments. All it does is give easy access (perhaps too easy) to the small investor who may not have much money to invest. If you buy into what are called “class A” shares (paying a commission up

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

front to own the shares), you may be disappointed if the fund manager decides to switch investment objectives or trading styles that you don't agree with. If you choose “class B” or “class C” shares (paying a commission when you sell the fund), you have to either “grin and bear it” or cash out, paying the contingent deferred sales charge associated with both of these classes.

There are restrictions on your investment. By law, most stock positions in mutual funds can

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

ot represent more than 5% of the fund. Government regulations have forced this issue for over 60 years through various requirements and the result is that this 5% rule, allegedly designed to make mutual funds a diversified investment product, are actually diluting the performance as the 5% rule will only effect the best stocks in the portfolio. This is because the stocks that perform the best will grow to more than 5% of the total portfolio value and must be sold. Meanwhile, the poor p

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

rformers will continue to lose money. As the good stocks grow “too large” and are sold off, poorer performing stocks are brought in to replace them. This dilutes even the moderately good stock's performance. What you are left with is a diversified portfolio; a diversified portfolio of poor performing stocks with a small amount of successful stock mixed into the fund.

There is a special type of liquidity issue with mutual funds. Typically, a certain amount of invest

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

ors' dollars are not invested in the underlying investments of the fund but are instead set aside for investors who want to pull out of the fund. By its very design, a mutual fund must do this so that it can maintain liquidity when investors want to sell. After all, what good is it to own an investment if you can’t sell it when its performance has “topped out”? To cloud the issue, sometimes it's not exactly clear how much of your money is actually being put to work in the market and ho

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

much is held back for redemption requests (redemption is just a fancy word for selling your fund shares).

Even if a significant amount of money is held in cash for redemption requests, there must be enough money invested in stocks, bonds, and other financial instruments to keep investors interested in investing in the mutual fund. This leads to a situation where when it is time to sell off your investment, there may not be enough cash reserves to meet redemption re

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

quests. When those cash on hand reserves are not enough to meet redemption requests the fund managers are forced to liquidate stock from the portfolio. This, in turn, can have a negative impact on the entire fund and hurt your returns if the fund manager has to sell those shares at low prices to create liquidity.

The possibility (and high probability) of excessive capital gains tax compared to other investments. There is significant research that suggests that many i

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

vestors sell when the market is down or try to time the market, but fail miserably (Dalbar, Inc.'s Quantitative Analysis of Investor Behavior was first issued in 1995. The most recent update continues to show that individual investors are not realizing anywhere near market rates of return in stocks and bonds because of frequent switching among “hot” mutual funds and trying to time the market. Over a period when the S&P grew by 12.98%, the average investor earned only 3.51%. Source: DAL

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

ARinc.com). When investors sell in a down market, and the fund manager has to liquidate stock at low prices to meet redemption requests, the remaining investors in the fund also lose money because of the added capital gains tax that is assessed at the end of the year due to the excessive liquidation of the mutual fund's portfolio. Even if the fund doesn’t need cash, excessive trading in an attempt to chase higher returns (to attract more investors) can have the same effect. In essence,

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

it can create a situation where it is possible to lose money over the course of a year, and still owe capital gains tax because of the amount of trading that was going on inside the fund.

Excessive transaction costs. Investors have, traditionally, continued to chase the highest returns in the market. To this end, funds have gotten the idea that they must stay “active” to keep the attraction of new investors and to try to “create” those high returns that investors w

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

nt. This requires, in many instances, a lot of trading. But trading is not free. Just as if you were to buy individual stocks yourself, there is a cost associated with doing trades, even for fund managers. This fee, of course will be passed on to you for your participation in the fund in the form of a transaction cost. Although many (if not most) funds - at this time - do not keep track of a stock’s bid/ask price at the time of a trade, it is estimated to be about .7% (RE: John Bogle;

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

Founder of the Vanguard Group).

Fund fees hurt performance. Lipper Analytical Services reports that half of all mutual funds charge their investors at least 1.4% of the investor’s assets. So if you have $100,000 in assets with a particular fund that does this, the fee for being in the fund would be $1,400 a year. Obviously this can add up over the years and detract from your overall returns.

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

12b-1 fees. A 12b-1 fee is a fee that is sanctioned by the Securities and Exchange Commission (SEC). The SEC, whose purpose is allegedly to protect the investor, has sanctioned this fee for mutual fund companies to offset the costs associated with advertising and other expenses of the fund. The fee, which can range from .25%-1% was supposed to help investors by lowering the costs associated with operating the fund and result in a lower expense ratio as more and more

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

nvestors bought into it. It is interesting to note; however, that this fee can be used to simply increase the cost of doing business. For example at one time, the Putnam New Opportunities fund was charging a .25% 12b-1 marketing fee for a fund that had been closed to new investors for over a year. The investors in that particular fund were paying Putnam on the order of $20 million a year to sell that fund to nobody.

Even no-load funds have loads. Many people, seekin

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

g to avoid the problematic expenses of mutual funds, gravitate towards the “no-load fund”. Popular media and financial gurus often recommend this route to save investors money while shopping for investments that can help them plan for retirement. However, even no load funds can carry a fee. This fee goes towards management of the fund, its operation, and is reflected in the expense ratio of the fund. We must keep in mind that the term “no load” can be misleading because mutual funds ar

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

a service (although many people take them for granted) that allows easy access to the market for small investors. This service, in any of its forms - like any other service - is not free.

To combat the challenges and problems facing the mutual fund industry, an alternative to the managed mutual fund was created - a special kind of fund called an “Index Fund”. Index funds are mutual funds that just track the performance of the stock market as a whole. They

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

don’t do very much trading throughout the year compared to an actively managed fund. While they typically carry lower fees than managed funds, they still carry a fee.

There are, in academic circles, folks that believe that the index fund is the holy grail of investment products. However, although no-load and index funds pose the least amount of downside to the investor in terms of negative qualities, they do lose money when the market declines. Still, in the world of mutual funds, th

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

index fund has done much to benefit the average investor.

As for actively managed mutual funds, it is interesting to note that, in addition to the various issues listed above, according to a recent 5 year survey by Lipper, 94% of mutual funds underperform the stock market as a whole. It would appear that even if you can dismiss all of the other troubles that plague a mutual fund, the performance issue would appear to be the most disconcerting for the average investor

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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As opposed to more than a few other unsecured debts, student loans can no more be crossed off in a bankruptcy court. Lenders of student loans have won a 1998 change in the federal law. As a result this has made it almost impossible to discharge their loans. The courts have cast off almost every single dispute that even the poorest of borrowers have made. Their arguments had posed that repayment would amount to an unwarranted hardship but bankruptcy attorneys now know that the courts have turned a deaf ear to such claims. Only those borrowers who are completely and permanently disabled have some hope of having their debt discharged.

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