Characteristics of Pooled Investments - Mutual Funds!

Question 1

What is the differentiating factor that distinguishes mutual funds?

Answer 1

Mutual funds offer different classes of shares. These shares are exposed to the same portfolio, they are only different in their sales charges and expenses.

Question 2

Compare the classes of mutual fund shares.

Answer 2

Class A shares:
- Have low to no 12b-1 fees.
- Charge a front-end load.
- Generally offer a schedule of breakpoints.
- An investor buying class A shares would pay the NAV next determined plus a sales charge.
Class B shares:
- Back-end loaded.
- Will convert to A shares after a period of times as described in the fund’s prospectus (generally 6/8 years). This is important becayse B shares have the highest 12b-1 fee, and class A shares have low to no 12b-1 fee.
- back end loads are also called contingent deferred sales charges. Class B shares are best for long-term investors that invest a little bit over time (dollar cost averaging works well here).
Class C shares:
- Back-end load (for a short period of time)
- level 12b-1 fee
- Never convert to A shares.

Question 3

Open end funds

Answer 3

• Issue redeemable shares.
• TRansfer agent of an open-end fund must redeem the shares iwthin 7 calendar days. (Both open and closed end funds are considered liquid).

Question 4

Closed end funds

Answer 4

• Issue shares that can be sold in the secondary market (marketable).
• Closed end funds can be sold anytime the market is open.
  -(Both open and closed end funds are considered liquid).

Question 5

ETFs (exchange traded funds)

Answer 5

ETFs trade in the secondary market. They would best fulfill your client’s desire to own mutual fund shares that can sold anytime during market hours.