Mutual Funds

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Transcript Mutual Funds

An Introduction to
Mutual Funds
PowerPoint Notes
What are Mutual Funds?
 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.
Why do People Invest in
Mutual Funds?
 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.
Continued
 Most mutual funds are professionally managed
by an investment expert known as a portfolio
manager.
 This individual makes all of the buying and
selling decisions for the fund.
 There are thousands of different mutual funds
in the United States.
 This provides investors with many options to
help them achieve their investment objectives.
Basic Mutual Fund
Categories
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Mutual Funds can be divided into four
basic categories based upon the funds
investment objective.
These categories are:
Money Market Mutual Funds
Stock Mutual Funds
Index Funds
Bond Mutual Funds
Balanced Mutual Funds
Money Market 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.
Stock Mutual Funds
 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.
Index 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.
Good News!
 It is time for us to begin watching a
Nightly Business Report Video on Mutual
Funds!
 With a question sheet of course!
 Don’t worry we will continue the
PowerPoint during our next class!
Bond Mutual 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.
Types of Bond Mutual
Funds
 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.
Balanced Mutual Funds
 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.
The Mutual Fund
Prospectus
 This is a legal document which describes
the investment objective of the fund, the
manner in which the fund is administered
and operated, the fees and other
pertinent information.
 The prospectus should be read
thoroughly before making an investment
decision.
Load v. No Load Mutual
Funds
 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 backend load charges the load when the
shares are sold.
 A no-load mutual fund doesn’t charge a
purchase or sales commission.
Major Mutual Fund
Companies
 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