7.7 Mutual Funds

1. 7.7 Mutual Funds Calculate the total investment in a mutual fund Calculate the amount and rate of commission Calculate profit or loss from mutual fund investments Lesson 7.7

2. Mutual Funds • Mutual fund investment companies use the money from investors to buy stock in many companies. • By investing in many companies, the mutual fund increases its chances of buying stocks that will be profitable. Lesson 7.7

3. Different Kinds of Mutual Fund Companies • There are many different kinds of mutual fund companies. • Some have aggressive growth goals. • Others choose to maximize the income from shares held. • Some mutual funds specialize in certain sectors of the economy, such as the health sector. • Others buy stock from many different types of organizations and from many different sectors of the economy. Lesson 7.7

4. Net Asset Values • Mutual fund shares are traded based on their net asset values. • The net assets are the total value of the fund’s investments less any debts it has. • The net asset value, or NAV, is found by dividing the net assets by the number of shares held by stockholders. • For example, a fund with net assets of $10,000,000 and 500,000 shares issued will have a net asset value of $20 ($10,000,000 ÷500,000 =$20). Lesson 7.7

5. Sample Information from Newspaper Financial Pages Lesson 7.7

6. No-load Funds and Load Funds • Two types of mutual funds are shown in the table: no-load funds and load funds. • The term load means commission. • No-load funds are sold without a commission and have the abbreviation “N.L.” in the Offer Price column. • When you buy load funds, you pay the amount shown in the Offer Price column, which includes a commission charge. Lesson 7.7

7. Total Investment • To find the total investment made in no-load funds, multiply the number of shares by the NAV. • For load funds, multiply the number of shares by the offer price. Total Investment in No-Load Funds =No. Shares ×NAV Total Investment in Load Funds =No. Shares ×Offer Price Lesson 7.7

8. Amount and Rate of Commissions • When you buy no-load funds, you are not charged a commission. • For load funds, the commission is the difference between the net asset value and the offer price. Lesson 7.7

9. Find the Rate of Commission • To find the rate of commission on a load fund’s purchase, divide the commission by the offer price. Offer Price –Net Asset Value =Commission Commission ÷Offer Price =Rate of Commission Lesson 7.7

10. Redeeming Mutual Fund Shares • When shares are redeemed, or sold back to the mutual fund company, the investor is paid the net asset value. • The proceeds from the sale are found by multiplying the net asset value by the number of shares redeemed. Proceeds –Number of Shares =Net Asset Value Lesson 7.7

11. Profit or Loss from Mutual Fund Investments • The profit or loss from owning mutual fund shares is the difference between the proceeds and the total amount invested. • If proceeds exceed investment, there is a profit. • If the amount invested is larger than the proceeds, there is a loss. Proceeds – Amount of Investment =Profit Amount of Investment –Proceeds =Loss Lesson 7.7

12. $11,170 Lesson 7.7

13. $11,170 $2,308 Lesson 7.7

14. 193.948 Lesson 7.7

15. 193.948 30.525 Lesson 7.7

16. 0% Lesson 7.7

17. Lesson 7.7

18. Lesson 7.7