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Investing In Mutual Funds Chapter 15

Investing In Mutual Funds Chapter 15. Personal Finance Fin 235. Mutual Fund Basics. What is a Mutual Fund? A pooling of investor capital to purchase a well diversified group of stocks and/or bonds

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Investing In Mutual Funds Chapter 15

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  1. Investing In Mutual FundsChapter 15 Personal Finance Fin 235

  2. Mutual Fund Basics • What is a Mutual Fund? • A pooling of investor capital to purchase a well diversified group of stocksand/or bonds • Securities may be from a single national market or may be diversified across numerous international markets. • Shares typically sell at their Net Asset Value (NAV) • Funds may be open-end or closed-end • Open-End: Issuer buys and sells on a continuous basis • Closed-End: Issuer sells once. Then shares will trade in secondary markets; e.g. NYSE, OTC, etc.

  3. Mutual Fund Basics • No-Load Funds • No Load funds do not charge sales fees. • Fund managers are compensated by management fees • Load Funds • Charge sales commissions on purchases or sales of shares. • Sales charges discourage frequent trading (which imposes additional expenses on funds. • Contingent Fees: a function of how long shares are held. • 12-b1 Fees • Imposed to cover marketing expenses

  4. Why Mutual Funds? • Mutual Funds allow small investors to hold well diversified portfolios of securities with a very small amount of capital. • Mutual Funds provide small investors with a wide variety of investment objectives

  5. Exchange Traded Funds • Why ETF’s? • Many mutual funds have minimum hold periods • ETF’s can be traded like stocks – most are very liquid • ETF’s provide a similar variety of investment objectives similar to mutual funds.

  6. Mutual Fund Classifications • Objectives • Capital Appreciation • Income • Index • Stock Funds • Aggressive Growth: small cap, large cap, value • Income • Global: investing in foreign companies • Index: tracking a particular index – S&P 500 • Sector: Chemicals, Transports, Real Estate, etc. • Country Funds: Canada, UK, France, Japan, etc.

  7. Specialized Funds • Asset Allocation: Cash, Stocks, Bonds, International • Balanced Funds: stocks and bonds • Fund of Funds: hold shares in other mutual funds • Life Cycle: changing riskiness of investments as investors get older. • Money Market Funds: a place to park your capital when not invested ion the market – earn interest.

  8. Selecting a Mutual Fund • Advisory Services • Lipper Analytical Services • Morningstar, Inc. • Value Line • Financial Publications • Quarterly performance rankings • Mutual Fund Prospectus • Everything you need to know about the fund • Must provide on request and to all new buyers.

  9. Mutual Fund Transactions • Typical Transactions • Dividends • Purchase additional shares • Hold in money market • Remit to investor • Capital Gains • Same as Dividends. • Dividends and Capital Gains distributions taxed as ordinary income to investor. • Regular monthly purchases: 401(k), 403(b), IRA • Withdrawals: checks sent directly to investor.

  10. Homework • Do The Math: 1 (a, b, c) • Be Your Own Personal Financial Planner • 1- Your Mutual Fund Preferences (w/s 61) • 3 – Calculating Mutual Fund Returns (w/s 63)

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