Download - Chapter 16: Investing Through Mutual Funds
![Page 1: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/1.jpg)
Chapter 16: Investing Through Mutual Funds
![Page 2: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/2.jpg)
Objectives
Identify why people invest in mutual funds.
Distinguish among the four major objectives of mutual funds.
Classify mutual funds by portfolio.
List the unique benefits of mutual funds.
![Page 3: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/3.jpg)
Objectives
Describe the various charges and fees associated with investing in mutual funds.
Explain how to select a mutual fund in which to invest.
Recognize valid reasons for selling a mutual fund investment.
![Page 4: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/4.jpg)
Investing Through Mutual Funds
open-end investment company combining
funds of investors who have purchased
shares in a diversified portfolio of securities.
MUTUAL FUND . . .
![Page 5: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/5.jpg)
What is a Mutual Fund?
A pool of moneyManaged by a professional investorManager works for an investment firmEach fund has a specific objectiveOver 6,000 funds to choose from
![Page 6: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/6.jpg)
Figure 15.1
![Page 7: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/7.jpg)
Three Reasons Why PeoplePurchase Mutual FundsDiversification
funds of many investors are pooled and used to purchase a variety of investments
Professional management who is the fund’s manager? managers can change
Convenience phone mail 16-3
![Page 8: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/8.jpg)
New/more types of funds
Few or no sales charges
Some performed better than common
stock
Widespread marketing
Selection is easier
Reasons for Investing Through Mutual Funds
![Page 9: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/9.jpg)
Dispense profits to investors
Investors expect dividend income
Investors expect price appreciation
Reasons for Investing Through Mutual Funds
![Page 10: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/10.jpg)
Closed and Open End Funds
Closed end fund (10% of funds) limited number of shares issued initially then can only purchase shares from
another investor willing to sell theirsOpen end fund (90% of funds)
no limitations on the number of shares the investment company can issue
shares are issued and redeemed by the investment company
![Page 11: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/11.jpg)
Net Asset Value
portfolio market value - liabilities
the number of shares outstanding
Offer price = NAV + sales commission
![Page 12: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/12.jpg)
Objectives of Mutual Funds
Current income
Long-term growth
Growth and income
Balanced
![Page 13: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/13.jpg)
Common stock
Balanced
Bond
Specialty
Money market
Classification of Mutual Funds
![Page 14: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/14.jpg)
Aggressive growth
Growth
Value
Growth and income
Classification of Mutual Funds
Small company
Sector
Global/international
Index
COMMON STOCK:
![Page 15: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/15.jpg)
Recordkeeping/reporting
Easy purchase and sale
Automatic reinvestment
IRS-qualified tax-sheltered retirement
Withdrawal plans
Collateral for loans
Unique Benefits of Mutual Funds
![Page 16: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/16.jpg)
Costs of Investing Through Mutual Funds
Hidden fees
Deferred load Redemption 12b-1
Disclosure of Fees
“Which is better, load or no-load?”
![Page 17: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/17.jpg)
Management Fees and Other Charges
One-time sales load fees
12b-1 fees
•Cannot exceed more than 1% of the funds assets per year•For a fund to be classified as no-load these fees cannot exceed more than 0.25% of the funds assets per year.
![Page 18: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/18.jpg)
Load vs. No Load Funds
Load Fund pay a commission to a sales
agent when you buy shares usually 3-8%
No Load Fund no sales charge paid purchased directly from the
investment company usually have an 800 number you can call
![Page 19: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/19.jpg)
Management Fees and Other Charges
Management feecharged yearly (.25 - 1%) based on a
percentage of the funds asset valueContingent deferred sales load
charged upon withdrawal of funds (1-6%)decreases with time held
12b-1 fees fee to defray advertising and marketing
costs of the fund
![Page 20: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/20.jpg)
Match goals
Locate sources of comparative performance data
Financial press (i.e. Wall Street Journal, Barron’s)
Magazines (i.e. Fortune, Kiplinger’s) Specialized mutual fund publications
Strategies for Selecting a Mutual Fund
![Page 21: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/21.jpg)
Explanatory Notes
f-Previous day’s quotationg-footnotes x and s apply j-footnotes e and s applyp-distribution costs apply, 12b-1 r-redemption charge may applys-stock split or dividend t-footnotes p and f applyv-footnotes x and e apply
![Page 22: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/22.jpg)
Interpret comparative performance information over time
Long-term/short-term performance Size of fund Fund performance in up/down markets
Read prospectuses and annual reports
Strategies for Selecting a Mutual Fund
![Page 23: Chapter 16: Investing Through Mutual Funds](https://reader035.vdocuments.us/reader035/viewer/2022062305/56814d69550346895dbab5c2/html5/thumbnails/23.jpg)
Fund performs poorly compared with similar funds
Perception of economic trends indicates business cycle will smooth out soon
Fund grows too rapidly or becomes too large Fund taken over by new manager Investment goals become more conservative Need cash
When To Sell