Mutual Funds Investment Terms

1. CommonInvestment Terms Mutual Funds

2. Learning the Lingo As you delve more and more into investing, you’ll run across many unfamiliar and confusing terms. Once you become familiar with these terms, though, investing and it’s associated research becomes much easier! In this presentation, you’ll learn many common terms in the world of mutual funds. Mutual funds are especially good for the beginning investor because they have built-in diversity and you can get started without much money.

3. Closed-End Fund • A type of fund which issues a finite number of shares that trade throughout the day on stock exchanges at market-determined prices. Investors in a closed-end fund can buy or sell shares through a broker or online. • Using this kind of fund is no different than buying and selling stock shares of any publicly traded company.

4. Diversification Investing broadly across a number of different securities, industries, or asset classes to reduce risk. This is a principal advantage of investing in mutual funds.

5. Dollar-Cost Averaging • The practice of investing a fixed amount of money on a regular basis. This strategy results in buying more shares of a mutual fund when the price is lower and buying fewer shares when the price is higher, which lowers the average price paid for the fund shares. • Also, this popular investment strategy promotes regular and consistent investing.

6. Expense Ratio The total of a fund's expenses, shown as a percentage of its assets. These expenses include operating expenses, salaries, and more, and amount to most of the cost of owning shares of that fund.

7. Front-end Load A fee that some funds impose at the time of purchase, in addition to the ongoing management expenses.

8. Hedge Fund • A private investment pool for qualified investors. Hedge funds are exempt from SEC registration. Among the various qualifications is a significant amount of wealth; the minimum investment is typically $1 million or more. • Hedge funds don’t have the same limitations as placed upon mutual funds. The risk and rewards can both be very high for hedge funds.

9. Hybrid Fund A mutual fund that invests in both stocks and bonds.

10. Index Fund A fund intended to mimic the performance of a market index. In essence, it's like owning a share of the entire market within that stock index.

11. Initial Public Offering (IPO) A closed-end fund's first offering of shares in that fund. Remember that closed-end funds are similar to stocks in many ways. Initial stock offerings from public companies are also referred to as IPOs.

12. Liquidity When an investment can be quickly converted to cash, it is said to have a high amount of liquidity. Mutual funds are quite liquid because the shares can be sold back to the fund the next business day.

13. Money Market Fund A mutual fund which invests in short-term securities. Money market funds are very safe, since the investments they make are quite low risk. Many people use these in lieu of a savings account. Money market funds are also a common place to hold money between investments.

14. Mutual Fund • An investment company that buys a portfolio of securities and is managed by a professional investment adviser. • Mutual funds can be actively managed, where the manager creates a mix of investments to meet the fund's stated objective. They can also be passively managed, in which case the manager would just be attempting to track the performance of a particular index.

15. Net Asset Value (NAV) The per-share value of a mutual fund. This is determined by subtracting the fund's liabilities from its assets and holdings and then dividing by the number of shares outstanding.

16. No-Load Fund A mutual fund that is sold without a sales commission and doesn’t have a 12b-1 charge of more than 0.25% per year.(See the definition of 12b-1 fees later in this presentation.)

17. Open-end Fund A mutual fund that sells shares directly to investors. The fund also buys back shares when investors decide to sell. The price of the shares is always the Net Asset Value (NAV).

18. Payroll Deduction Plan Some employers provide employees the option of deducting a specific amount from their paychecks at regular intervals; those monies are then used to purchase mutual fund shares.

19. Portfolio The collection of securities (stocks, bonds, and other financial instruments) held by the mutual fund. The sum of your investment holdings would be your own personal portfolio.

20. Prospectus Mutual funds have to provide an official document that describes the mutual fund to prospective investors. The information is required by the SEC and contains such attributes as policies, fees, and risks.

21. Stock Fund A mutual find that primarily invests in stocks.

22. Total Net Assets This is simply the total amount of assets a fund possesses minus its liabilities.

23. Total Return A measure of a fund's performance that considers all aspects of return: capital gains distributions, dividends, and changes in net asset value. The total return is assessed over a specific period of time, and assumes that all dividends and capital gains distributions are reinvested.

24. Yield A measure of income (dividends and interest) earned by the securities in a fund's portfolio minus the fund's expenses during a specified period. A fund's yield is expressed as a percentage of the maximum offering price per share on a specified date.

25. 12b-1 Fee A mutual fund fee, named for the SEC rule that permits it, used to pay distribution costs. One example of these expenses is compensation to financial advisers for initial and ongoing assistance. If a fund has a 12b-1 fee, it will be disclosed in the fee table of a fund's prospectus.

26. Your World Just Got Easier! Now that you know about mutual funds, take this knowledge and apply it to your world. How? By starting a regular investment plan with mutual funds!

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