PowerPoint Notes

What are Mutual Funds?

Why do People Invest in Mutual Funds?

Basic Mutual Fund Categories

Load vs. No Load Mutual Funds

Major Mutual Fund Companies

Mutual funds are a type of investment that

takes money from many investors and uses it

to make investments based on a stated

investment objective.

Each shareholder in the mutual fund

participates proportionally (based upon the

number of shares owned) in the gain or loss

of the fund.

Mutual funds offer investors an affordable way to diversify their investment portfolios.

Mutual funds allow investors the opportunity to have a financial stake in many different types of investments.

These investments include: stocks, bonds, money markets, real estate, commodities, etc…

Individually, an investor may be able to own stock in a few companies, a few bonds, and have money in a money market account. Participation in a mutual fund, however, allows the investor to have much greater exposure to each of these asset classes.

Mutual Funds can be divided into four basic categories based upon the funds investment objective.

These categories are:

1. Money Market Mutual Funds

2. Stock Mutual Funds

3. Index Funds

4. Bond Mutual Funds

5. Balanced Mutual Funds

This is the most conservative type of mutual fund.

The goal is to maintain the $1 value of its shares while providing income.

Invests in high-quality, short-term securities such as certificates of deposit, U.S. Treasury Bills, and U.S. Treasury Notes.

MMMF’s are an appropriate place for savings.

These funds have typically offered higher interest rates than bank savings accounts.

Money market mutual funds are not insured by the FDIC.

Type of fund that invests in stocks.These funds are also known as equity

funds.There are many different types of stock

mutual funds. Some of the most common include:Large-cap funds, mid-cap funds, small-cap

funds, income funds, growth funds, value funds, blend funds, international funds, and sector funds.

These are mutual funds whose holdings aim to

track the performance of a specific stock market

index.

The most common index fund tracks the S&P

500. These index funds invest in the exact stocks

(and in the same percentages) as those found in

the S&P 500.

Index funds also track bonds, real estate, and

other types of assets.

These funds are lower cost than other types of

funds.

Type of mutual fund that invests in bonds.

There are different types of bond mutual

funds.

Typically, bond mutual funds have the

objective of providing stable income with

minimal risk.

Short, Intermediate, and Long-Term U.S.

Bond Funds

Short, Intermediate, and Long-Term

Corporate Bond Funds

Municipal Bond Funds

High-Yield (junk) Bond Funds

We will talk more about bonds and bond

funds later in this unit of study.

These are also known as hybrid funds.

These mutual funds invest in stocks, bonds,

and money markets.

These are very diversified mutual funds. The

stock portion of the fund provides the

potential for capital appreciation, while the

bond and money market portion provide

income.

A mutual fund that charges a commission to

cover its administrative costs is called a load

fund.

A front-end load charges the load when the

shares are purchased, while a back-end load

charges the load when the shares are sold.

A no-load mutual fund doesn’t charge a

purchase or sales commission.

Vanguard, Fidelity, and T. Rowe Price are

three of the world’s major mutual fund

companies.

http://vanguard.com

http://fidelity.com

http://troweprice.com

A mutual fund brings together a group of

people and invests their money in stocks,

bonds, and other securities. The advantages

of mutual's are professional management,

diversification, economies of scale,

simplicity and liquidity. The disadvantages of

mutual's are high costs, over-diversification,

possible tax consequences, and the inability

of management to guarantee a superior

return. Mutual funds have lots of costs.