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Benefits of Mutual Funds
- -diversification
- -Professional Management
- -Minimum Initial Investment
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drawbacks of mutual funds
- -risk
- -costs
- taxes on cap gains, dividends and profits from selling them
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difference between open end fund and closed end fund
- open end- they buy back your funds, will sell new funds,
- closed end- you can only purchase or sell by going through another investor
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Net asset Value
- The value of assets- liabilities held by a mutual fund divided by the number shares outstanding
- -changes everyday
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Taxation of investment companies
- •A “regulated investment company” does not have to pay taxes on
- its investment income.
- •To qualify, an investment company must:
- –Hold almost all its assets as investments in stocks, bonds, and other securities
- –Use no more than 5% of its assets when acquiring a particular security
- –Pass through all realized investment income to fund shareholders
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Types of expenses and fees
- 1. sales charge
- 2. 12b-1 fees
- 3. management fees
- 4. trading costs
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sales charge "load"
–Front-end loads are charges levied on purchases.
–Back-end loads are charges levied on redemptions.
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12b-1
allows funds to spend up to 1% of fund assets annually to cover distribution and marketing costs.
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Management Fees
- –Usually range from 0.25% to 1.00% of the funds total assets
- each year.
–Are usually based on fund size and/or performance.
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Trading costs
–Not reported directly
- –Funds must report "turnover," which is related to
- the amount of trading.
- –The higher
- the turnover, the more trading has occurred in the fund.
- –The more trading, the higher the trading costs.
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money market mutual funds
- •Money market mutual funds (MMMFs) are mutual funds specializing in money market instruments.
- –MMMFs maintain a $1.00 net asset value to make them resemble bank accounts.
- high quality, super short term, maturities less than 90 days
- –There is no guarantee that the net asset value will be $1.00 or more.
- •A Net Asset Value for a MMMF under $1.00 results in the term, “breaking the buck.”
- •Following the Crash of 2008, a few MMMF “broke the buck.”
- –Depending on the type of securities purchased, MMMFs can be either taxable or tax-exempt.
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Long term funds
- stock funds
- taxable and muni bond funds
- stocks and bond funds
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stock funds
- •Some stock funds trade off capital
- appreciation and dividend income.
- –Capital appreciation
- –Growth
- –Growth and Income
- –Equity income
- •Some stock funds focus on companies in a
- particular size range.
- –Small company
- –Mid-cap
- –Large-cap
- •Some stock fund invest internationally.
- –Global
- –International
- –Region
- –Country
- –Emerging markets
- •Sector funds specialize in specific sectors of
- the economy, such as:
- –Biotechnology
- –Internet
- –Energy
- •Other fund types include:
- –Index funds
- –Social conscience, or “green,” funds
- –“Sin” funds (i.e., tobacco, liquor, gaming)
- –Tax-managed funds
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Bond Funds
- •Bond
- funds may be distinguished by their
- –Maturity range
- –Credit quality
- –Taxability
- –Bond type
- –Issuing country
- •Bond
- fund types include:
- –Short-term and intermediate-term funds
- –General funds
- –High-yield funds
- –Mortgage funds
- –World funds
- –Insured funds
- –Single-state municipal funds
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