Presentation Transcript

1. Mutual Funds

   By: Tyler Etwraoo, Matthew Paoletta, Aqulies Sanchez & Josh Ovcjak
2. What Are Mutual Funds? A mutual fund is an investment program that is composed of a pool of funds from many investors and managed by a professional investment company. (Asset Management Company) These funds then go in to the investment of stocks and/or bonds The pooling of funds results in the creation of a suitably diversified portfolio due to the large amount of capital that is now apparent.
3. How Do Mutual Funds Work? An Asset Management Company (AMC) raises money from the investing public. Investors would buy shares in the mutual fund. Then the money as a pool is then invested in securities such as stocks, bonds and money market instruments. The AMC charges fees to the investors for managing the mutual fund. When you invest in a mutual fund, you then become a mutual fund shareholder. When the fund gains profits, you will earn dividends according to the amount of shares bought but if the fund loses, your share’s value in the fund will decrease. The investor may have the option to pull out of the mutual fund at anytime by selling their shares (if it is an open ended fund). The fee that charged to the investor by the sales person is called the load. Charges can potentially be up to 8.5% of the selling price. http://www.youtube.com/watch?v=U8363dfQkFU
4. Cont’d The investor is charged in one of two ways; A Front-end load: investor pays when mutual fund is bought. OR A Back-end load: investor pays when mutual fund is sold. Prices are of the fund’s share are determined by its Net Asset Value (NAV) A mutual fund investment can either be long or short-term depending on what the fund is invested in. Usually the higher the risk of the investment, the longer the term is. * Net Asset Value: the value of a mutual fund that is reached by deducting the fund's liabilities from the market value of all of its shares and then dividing by the number of issued shares.
5. Open & Closed-Ended Funds Open-Ended Fund: have no limit as to how many shares they can issue. The investor can sell their shares where it is then taken out of circulation. These funds cannot be observed like the stock market as the funds re-price based on the amount of shares bought and sold. The priced is based on the total value of the NAV. Closed Ended Fund: exchange traded funds that are traded in the open market like a stock. Fixed amount of shares are issued. Price is affected by supply and demand. These funds usually pay high dividends but are a higher risk.
6. Components of a Mutual Fund Shareholders Board of Directors Oversees the fund\'s activities, including approval of the contract with the management company and certain other services providers. Mutual Fund Investment Advisor :Manages the fund\'s portfolio according to the objectives and policies described in the fund\'s prospectus. Principal Underwriter: Sells fund shares, either directly to the public or through other firms (such as broker dealers). Administrator: Oversees the performance of other companies that provide services to the fund and ensures that the fund\'s operations comply with the applicable federal requirements. Transfer Agent: Executesshareholder transactions, maintains records of transactions and other shareholders\' account activities, and sends account statements and other documents to shareholders. Custodian: Holds the fund\'s assets, maintaining them separately to protect shareholder interests. Independent Public Accountant: Certifies the fund\'s financial statements.
7. Types of Mutual Funds There are eight types of mutual funds: Money Market Funds: short term fixed income investments in securities such as government bonds and treasury bills. Low risk investments. Fixed Income Funds: investments that pay a fixed rate of return. Riskier than money market. Mortgage Funds: investing in mortgages to create income. Income comes from the payments of mortgage holders. Risk can be high. Growth/Equity Funds: invest in equities such as stocks and income trusts. This allows funds to grow faster but there is a high risk as losing money is quite possible. These are generally long term.
8. Types Cont’d Balanced Funds: Invest in a mix of equities and fixed income securities. Tries to balance high returns with low risk. Higher risk than fixed income, but lower than equity funds. Index Funds: invest in equities or fixed income securities chose to mimic a specific index such as the TSX Composite Index. Specialty Funds: invest in equities or fixed income securities in a specific region (e.g. Canada) or sector (e.g. oil). Can result in high returns but is high risk. Real Estate Funds: invest directly in property or indirectly through real estate management companies. The returns can be very high but it poses the largest risk of the other types.
9. Why Invest Into Mutual Funds? Funds are professionally managed Mutual funds results in a diversified portfolio thus spreading out the risk of losing. Buying shares buys you into a pool of large capital, resulting in more significant gains. Convenient when it comes to investments, withdrawals and/or the reinvestment of capital gains & dividends. Liquidity; easy to buy and sell mutual fund shares. Able to quickly exchange shares for another investment or cash.
10. Disadvantages of Mutual Funds High sales charges can result in large payments with small gains. Hidden fees (sometimes) Potential Management Abuses. Share orders are filled late near market close. Have high capital gains distributions that are taxed
11. Activity: You Are All Mutual Fund Managers Objective: Formulate the best plan and type of mutual fund to have your AMC focus on according to your clients’ criteria. Group 1: Your client base demands a mutual fund that is short term with low risk. Returns is not of primary concern. Group 2: Your client base demands large returns while exercising the lowest risk possible Group 3: Your client base is highly interested in the computer industry for investing in hopes of high returns. Group 4: Your client base wants fast share growth through equities over a 4-8 year term, but wants to minimize risk as much as possible.