Chapter 15 Mutual Funds Flashcards
What are the advantages of mutual funds?
diversification professional management minimal transaction costs liquidity flexibility service avoidance of bad brokers
What are the disadvantages of mutual fund investing?
lower-than-market performance costs risks you can't diversify away a market crash taxes
A mutual fund ___________ money from investors with similar financial goals.
You are investing in a diversified portfolio that’s professionally managed according to _____ goals
Investment objectives are _______ stated.
pools
set
clearly
As the value of the securities in the fund increases, the value of each mutual fund ________ also rises.
Most pay ___________ or ____________ to shareholders.
Shareholders receive a capital gains distribution when the fund _________ a security for more than ___________ paid.
share
dividends or interest
sells, originally
The fund is set up as a ________ or __________.
Shareholders elect a ________ of directors.
Fund is run by a __________ company.
Each individual fund hires an investment advisor to oversee the fund.
Contracts with a custodian, a transfer agent, and an underwriter.
corporation or trust
board
management
a firm that invests the pooled money of a number of investors in return for fees
investment company
a mutual fund that has the ability to issue as many shares as investors want. The value of all the investments that the fund holds determines how much each share in the mutual fund is worth
open-end investment company or mutual fund
the dollar value of a share in a mutual fund. it’s the value of the fund’s holdings divided by the number of shares outstanding
net asset value (NAV)
the NAV equation is
=(total market value of all securities-liabilities)/ total shares outstanding
a mutual fund that can’t issue new shares. These funds raise money only once by issuing a fixed number of shares, and thereafter the shares can be traded between investors. The value of each share is determined both by the value of the investments the fund holds and investor demand for shares in the fund
closed-end investment company or mutual fund
a fixed pool of securities, generally municipal bonds, in which each share represents a proportionate ownership interest in that pool. The bonds are purchased and then held until maturity, at which time the trust is dissolved.
unit investment trust
an investment vehicle similar to a mutual fund that specializes in real estate investments, such as shopping centers or rental property, or that makes real estate loans
real estate investment trust (REITs)
an investment fund that is private, largely unregulated, and very risky and which charges very high fees and only allows wealthy investors to invest
hedge fund
a sales commission charged on a mutual fund
load
a mutual fund on which a load or sales commission is charged
load fund
Class A shares have what kind of load?
front-end sales load
Class B shares have what kind of load?
back-end load
Class C shares have what kind of load?
front and back end loads
What is a no load fund?
mutual fund that doesn’t charge commission
the ratio of a mutual fund’s expenses to its total assets
expense ratio
a measure of the level of a fund’s trading activity, indicating what percentage of the fund’s investments are turned over during the year
turnover rate
the higher the turn over rate, the higher the funds?
expenses
an annual fee, generally ranging from .25 to 1 percent of a fund’s assets, that the mutual fund charges its shareholders for marketing costs
12b-1 Fee
what are the three forms of returns of a mutual fund
dividends
capital gains
change in net asset value
calculating returns can help you spot funds that have __________ winners over time
consistent
Automatic reinvestments result in increases in the _________ and the number of shares
NAV
what is the equation for total return?
(dividends distributed+ capital gains distributed +ending NAV- beginning NAV)/beginning NAV
mutual funds that invest in T-bills, CDs, commercial paper, and other short-term notes, generally with a maturity of less than 30 days
money market mutual funds
Money market mutual funds carry no loads, trade at a constant $1 NAV, and have minimal expense ratios, which means what about their risk?
basically risk free
a money market mutual fund that invests only in very short-term municipal debt
tax-exempt money market mutual fund
a money market mutual fund that invests solely in US government securities in order to avoid any risk whatsoever
government securities money market mutual fund
mutual funds that invest primarily in common stock
stock funds
what kind of stock fund is this:
one that tries to maximize capital appreciation while ignoring income. in other words, these funds tend to go for stocks whose prices could rise dramatically, even though these stocks tend to pay very small dividends
aggressive growth funds
what kind of stock fund is this:
this kind of fund is similarly to aggressive growth funds except they limit their investments to small companies. the purpose of investing in these is to uncover and invest in undiscovered companies with unlimited future growth
small company growth funds
what kind of stock fund is this:
the difference between these and aggressive growth funds are small, but these pay more attention to strong firms that pay dividends.
growth funds
what kind of stock fund is this:
this general category of funds tries to invest in a portfolio that will provide the investor with a steady stream of income in addition to having the potential for increasing value. These funds focus on everything from well-established blue-chip companies with strong stable dividends and growth opportunities to stocks with low P/E ratios and above-average dividends
growth-and-income funds
what kind of stock fund is this:
a specialized mutual fund that generally invests at least 65 percent of its assets in securities from a specific industry
sector funds
what kind of stock fund is this:
this kind of mutual fund tries to track a market index, such as the S&P 500. It does so by buying the stocks that make up the S&P 500
index funds
what kind of stock fund is this:
concentrates its investments in securities from other countries
international funds
a mutual fund that tries to “balance” the objectives of long-term growth, income, and stability. to do this, these funds invest in a mix of common stock and bonds, as well as preferred stock in some cases
balanced mutual fund
balanced funds are aimed at those needing income to live on and moderate stability in their investment. Balanced funds are less __________ than stock mutual funds.
volatile
a mutual fund that invest in a mix of stocks, bonds, and money market securities
asset allocation funds
basically asset allocation funds are balanced funds that practice market ___________
timing
mutual funds that try to tailor their holdings to the investor’s individual characteristics, such as age and risk tolerance
life cycle funds
a mutual fund professionally managed for an investor’s state of retirement with the investments in the fund automatically growing more conservative as the investor’s retirement date nears
target retirement fund
mutual funds that invest primarily in bonds
bond funds
Bond funds fluctuate in value with the ________ interest rates. Used for small amounts of money, to keep investments ________.
market
liquid
What are the three kinds of bonds?
Us government bond funds
municipal bond funds
corporate bond funds
what are the time ranges for bonds?
short
intermediate
long term
1-5 yrs
5-10 yrs
10-30 yrs
a hybrid between a mutual fund and an individually traded stock or bond that trade on an exchange just as individual securities do and can be bought and sold throughout the day
exchange traded funds
ETFs charge lower annual expenses but still pay trading commissions.
More _____-efficient than most mutual funds.
Allow investors to stake out an investment position in a _________, ____________, or ___________
sector, industry, or country
Can investors make their moves in ETFs throughout the market’s trading hours and not wait until closing for the move to take place?
yes
an __________ investment plan allows you to make regular deposits directly from your bank account
automatic
a systematic ______ plan allows you to withdraw a dollar amount or a percentage of your mutual fund account on a monthly basis
withdrawal
with a mutual fund, you have your choice of receiving interest, dividends, and capital gains payments or having them ________ by purchasing more shares in the fund. If you plan to use the mutual fund as a long term investment, have the distributions automatically reinvested
reinvested
If you anticipate needing your funds or your returns fast, you can choose a _______ and _______ ________option. This option allows you to have your returns/money wired directly to your bank account. It also works the other way and allows you to invest money in the fund immediately by wiring money directly to the fund.
wiring and funds express
This option allows you to move money form one fund to another simply by making a phone request or making a request on the fund’s website.
phone and internet switching
Most mutual funds provide for the easy establishment of IRS-approved tax-deferred retirement accounts, including traditional and Roth IRAs, 401(k), and Keogh plans. the fund will provide you with everything you need to establish such a plan and then handle the administrative duties
easy establishment of retirement plans
_______ __________ privileges associated with money market mutual funds can prove very handy when you need to use money from your investments directly for making purchases or in an emergency.
check writing
some of the larger investment companies provide a “tax cost” service that actually calculates your taxable gains or losses when you sell your shares.
bookkeeping and help with taxes
What are the steps in buying a mutual fund?
1) determine your _____
2) meeting your ___________
3) _________ a fund
4) making the purchase
goals
objectives
select
