Card Set Information
Benefits of Mutual Funds
-Minimum Initial Investment
drawbacks of mutual funds
taxes on cap gains, dividends and profits from selling them
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
Net asset Value
The value of assets- liabilities held by a mutual fund divided by the number shares outstanding
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
Types of expenses and fees
1. sales charge
2. 12b-1 fees
3. management fees
4. trading costs
sales charge "load"
–Front-end loads are charges levied on purchases.
–Back-end loads are charges levied on redemptions.
allows funds to spend up to 1% of fund assets annually to cover distribution and marketing costs.
–Usually range from 0.25% to 1.00% of the funds total assets
–Are usually based on fund size and/or performance.
–Not reported directly
–Funds must report "turnover," which is related to
the amount of trading.
the turnover, the more trading has occurred in the fund.
–The more trading, the higher the trading costs.
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.
Long term funds
taxable and muni bond funds
stocks and bond funds
•Some stock funds trade off capital
appreciation and dividend income.
–Growth and Income
•Some stock funds focus on companies in a
particular size range.
•Some stock fund invest internationally.
•Sector funds specialize in specific sectors of
the economy, such as:
•Other fund types include:
–Social conscience, or “green,” funds
–“Sin” funds (i.e., tobacco, liquor, gaming)
funds may be distinguished by their
fund types include
–Short-term and intermediate-term funds
–Single-state municipal funds