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Mutual Funds

Mutual Funds. Investment Company Institute (Washington, DC). www.ici.org. Comparing Investment Companies. Advantages of Mutual Funds. Diversification Variety of Objectives Professional Management Special Services. Mutual Fund Diversification. Benefits small investors

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Mutual Funds

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  1. Mutual Funds

  2. Investment Company Institute(Washington, DC) • www.ici.org

  3. Comparing Investment Companies

  4. Advantages of Mutual Funds • Diversification • Variety of Objectives • Professional Management • Special Services

  5. Mutual Fund Diversification • Benefits small investors • Typical fund: 75-100 stocks • Limited diversification for sector or specialty funds; i.e., • defense; drugs; utilities

  6. Sector Funds • “Sector funds offer targeted exposure to different segments of the economy, helping you achieve a variety of strategic and tactical investment goals. We offer one of the largest selections of sector funds in the industry, including 44 funds that are actively managed by Fidelity.”

  7. Mutual Fund Objectives • Growth • Income • Balanced • Index • Tax-exempt

  8. Mutual Fund Management • Performance measurement • risk-adjusted • versus the market • Total returns (Inc+Cap Gain) • Fees and charges

  9. Mutual Fund Services • Record keeping • Safekeeping of shares • Dividend reinvestment • “switching” - family of funds • Automatic investment & payout • Internet accessible

  10. Mutual Fund Costs • Sales Charges (Load) • Investment Advisory Fees • Account Maintenance Fees

  11. Sales (Load) Charges • Front-end (about 5%) • added to net asset value (NAV) • expressed as a % of the offering price

  12. Net Asset Value (NAV)

  13. Net Asset Value (NAV)

  14. Mutual Fund Load Charge

  15. Mutual Fund Load Charge

  16. Sales (Load) Charges • Front-end (about 5%) • added to net asset value (NAV) • Back-end (Redemption) • reduced over time • 12(b)-1 fees (1980); <1% of assets • offsets advertising costs

  17. Fund Use of 12b-1 Income, 2004[Source: Inv. Co. Inst.]

  18. 12b-1 Fees have skyrocketed![Source: Investment Co. Inst.]

  19. Investment Advisory Fees • Paid by fund to advisor • Percentage of assets • Sliding scale: • 1% of first $100 million • .75% of next $100 million • .60% of remainder

  20. Account Maintenance Fees • Per account charge • Example: $10 per year, billed quarterly • May be waived based on account size; (> $10,000)

  21. Exchange-Traded Funds (ETF) • Similar to an index fund, i.e., Dow, S & P 500, and NASDAQ 100 • First ETF: SPDR (1993) • ETFs based on: • Commodities, i.e., gold • Currencies • Countries

  22. Exchange-Traded Funds (ETF) • Trade daily on an exchange • Buy and sell during the day • Limit orders; Short sales; Margin • No minimum on purchases • Funds use of leverage

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