Chapter 15 Flashcards
Mutual Fund
An investment that raises from investors, pools of money, and invests in stocks, bonds, and other investments.
Each Investor owns a share of the fund proportionate to his/her investment
Advantages of Mutual Funds
Professional Management Minimal Transaction Costs Liquidity Flexibility Service Avoidance of bad Brokers
Disadvantages of Mutual Funds
Lower than market performance Costs Risks You cant diversity away a market crash Taxes
Net Asset Value
The dollar value of a share in a mutual fund
(Total market value of all securities - Liabilities)/ Total shares outstanding
Open End Investment Company
A mutual fund that has the ability to issue as many shares as investors want.
Closed End Investment Company
A mutual Fund that cant issue new shares. Funds raise money only once u issuing a fixed number of shares and thereafter the shares can be traded in between investors.
Unit Investment Trust
Fixed pool of securities, generally municipal bonds, in which each share represents a proportionate ownership interest in that pool.
Real Estate Investment Trust (REIT)
An investment vehicle that specializes in real estate investments, such as shopping centers or rental property
Hedge Fund
A private investment fund that is largely unregulated and very risky. Charged high fees and only allows for very wealthy investors.
Load
Sales commission charged on a mutual fund
Load Fund
Fund that charges a Load
No Load Fund
Fund that does not charge a Load
Class A Shares
Front end Load– Fee charged when funds are purchased
Class B Shares
Back end load–A commission that only is charged when the investor liquidates his or her holdings
Class C Shares
Investor is charged a Front and Back end Load
Expense Ratio
ratio of a mutual funds expenses to its total assets
Want this to be low
Turnover Rate
Measure of the level of the funds trading activity, indicating what percentage of the funds investments are turned over during the year
A higher rate will indicate more expenses
12b-1 Fee
Annual Fee, Generally .23-1% of funds assets, charged by the mutual fund for marketing costs
Total Return
(Dividends Distributed+Capital Gains Distributed+ending NAV-Beginning NAV) / (Beginning NAV)
or
(Number of Ending shares X ending price)-(Number of beginning shares X Beginning Price)/ (Number of Beginning shares X Beginning Price)
Money market mutual Fund
Invests in Treasury Bills, CDs, and other short term investments(less than 30 days)
No load, constant $1 NAV
Tax exempt, Governmental Securities
Stock Funds
Mutual Funds that Invest Primarily in Common Stock
Aggressive Growth Fund
Tries to maximize capital appreciation, ignores actual income. Potential for big gains but also big loss
Small Company Growth Fund
limit investments to small companys
Growth Funds
Similar to aggressive growth but focuses on strong firms that pay dividends
Growth-and-Income Funds
Invests in a portfolio that provides the investor with a steady stream of income in addition to possibility of increasing value
Sector funds
specialized mutual fund that invests at least 65% of its assets in securities of a specific industry
Index Fund
Invests into stock portfolios tracking market index,
Ex. S&P 500
International fund
concentrates investments in securities from other countries
Balanced Mutual Fund
Holds Common stock, Bonds, and sometimes preferred stock
Less volatile than mutual funds. Tries to balance objectives of long term growth, income and stability
Asset Allocation Funds
Invests in Stocks, Bonds, and Money mkt Securities.
Moves money between the three to outperform the market
Life Cycle Fund
Tries to tailor holdings to the investors individual characteristics, such as age and risk
Target Retirement Fund
Based on lifestyle of a retiree
Exchange Traded Fund
Fund that trades on an exchange
Services of Mutual Funds
Automatic investment/ withdrawal wiring of funds Phone or internet switching check writing bookkeeping and help with taxes
Buying a mutual fund
Make Goals
What does it take to meet objectives
Evaluate funds
Make the purchase
