1 / 22

Chapter 15: Investing Through Mutual Funds

Chapter 15: Investing Through Mutual Funds. 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. Objectives.

gaye
Download Presentation

Chapter 15: Investing Through Mutual Funds

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 15: Investing Through Mutual Funds

  2. 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. Objectives

  3. 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. Objectives

  4. open-end investment company combining funds of investors who have purchased shares in a diversified portfolio of securities. Investing Through Mutual Funds MUTUAL FUND . . .

  5. What is a Mutual Fund? • A pool of money • Managed by a professional investor • Manager works for an investment firm • Each fund has a specific objective • Over 6,000 funds to choose from

  6. Figure 15.1

  7. Three Reasons Why PeoplePurchase Mutual Funds • Diversification • 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

  8. 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

  9. Dispense profits to investors Investors expect dividend income Investors expect price appreciation Reasons for Investing Through Mutual Funds

  10. 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 theirs • Open 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

  11. Net Asset Value portfolio market value - liabilities the number of shares outstanding Offer price = NAV + sales commission

  12. Current income Long-term growth Growth and income Balanced Objectives of Mutual Funds

  13. Common stock Balanced Bond Specialty Money market Classification of Mutual Funds

  14. Aggressive growth Growth Value Growth and income Classification of Mutual Funds • Small company • Sector • Global/international • Index COMMON STOCK:

  15. Unique Benefits of Mutual Funds • Recordkeeping/reporting • Easy purchase and sale • Automatic reinvestment • IRS-qualified tax-sheltered retirement • Withdrawal plans • Collateral for loans

  16. Costs of Investing Through Mutual Funds • Hidden fees • Deferred load • Redemption • 12b-1 • Disclosure of Fees • “Which is better, load or no-load?”

  17. 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.

  18. 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 theinvestment company • usually have an 800 number you can call

  19. Management Fees and Other Charges • Management fee • charged yearly (.25 - 1%) based on a percentage of the funds asset value • Contingent 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

  20. Strategies for Selecting a Mutual Fund • 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

  21. Strategies for Selecting a Mutual Fund • 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

  22. When To Sell • 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

More Related