BM410 Investments. Mutual Fund Basics. Objectives. A. Understand the advantages and disadvantages of mutual funds B. Understand the major types of mutual funds C. Understand how to calculate mutual fund returns D. Understand the process of how to buy a mutual fund
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Mutual Fund Basics
(ending NAV–beginning NAV)+ distributions beginning NAV
Make sure you adjust your beginning and ending NAV’s to take into account the cost of both front-end and back-end loads!
(#ES x EP) – (#BS x BP) + Distributions
(#BS x BP)
#BS = beginning shares owned BP= beginning price
#ES = ending shares owned EP = ending price
After-tax (AT) Total return:
(#ES x EP) – (#BS x BP) + ATSD+ATLCG+ATSCG+ATBDI
(#BS x BP)
ATSD = Stock dividends * (1-tax on stock dividends)
ATLCG = Long-term cap gains * (1-tax on LT Cap Gains)
ATSCG = Short-term cap gains * (1-tax on ST Cap Gains)
ATBDI = Bond dividends/interest * (1-tax rate on interest)