MODULE 12 Flashcards
What are the 11 most common mutual funds?
- Open-end Fund
- Closed-end Fund
- RRSP eligible Fund
- Treasury bill fund
- Money market fund
- Mortgage Fund
- Income Fund or Bond Fund
- Dividend Fund
- Balanced Fund
- Equity Fund or Stock Fund
- Index Fund
Open end fund (Mutual fund)
This is a mutual fund that continuously sells its own shares or units to the public. Its investors or shareholders have a continuing right to sell their shares back to the fund itself.
Closed end fund (Mutual fund)
This is a mutual fund that offers its shares or units to investors at the time the fund is set up. After that, the fund normally will not sell or buy back its shares or units. Thus, the equity base of a closed-end fund is relatively fixed and seldom changes materially
RRSP Eligible fund
An RRSP-eligible fund is one that has enough Canadian investments in the fund to avoid contravening the RRSP and RRIF foreign investment restriction.
Treasury Bill Fund
This is a mutual fund that invests exclusively in Treasury bills issued by the government of Canada.
Money Market Fund
This is a mutual fund that invests in safe, short-term, liquid investments such as Treasury bills, term deposits, commercial paper (short-term corporate debt), and short-term bonds. The fund generates a floating rate of return that rises or falls with the rate of inflation. Money market funds (as well as Treasury bill funds) are normally good investments when the rate of inflation is rising.
Mortgage Funds
This is a mutual fund that invests primarily in high-quality conventional mortgages (i.e., first mortgages).
Income Fund or Bond Fund
This is a mutual fund that invests primarily in government bonds, high-quality, high-yielding corporate bonds, some high-yield preferred and common stocks and mortgages. The objective of the fund is to maintain the safety of principal and high income.
Dividend Fund
This is a mutual fund that invests primarily in Canadian preferred and common stocks with high dividend yields. The preferential tax treatment of dividends over interest-bearing investments makes this type of fund highly attractive to some investors.
Balanced Fund
This is a mutual fund that allocates its money among the three basic types of investments - cash equivalent investments, bonds and common stocks. In some balanced funds, the portfolio mix remains fairly stable from one period to another and the fund’s manager adopts a more or less “buy-and-hold” investment strategy. In other balanced funds, the manager changes the portfolio mix continuously, putting more weight on the investment type that is expected to outperform the other two for the coming period. This strategy of changing the portfolio mix continuously to increase the return on investment is called the asset allocation strategy.
Equity Fund or Stock Fund
An equity fund invests primarily in common stocks, although short-term notes and other fixed income securities may be held to maintain liquidity. Because common stock prices are more volatile than those of other fixed income securities, equity funds tend to be more risky than income or balanced funds. Equity funds have a great range in the degrees of their risk and growth potentials. Some are heavily invested in blue-chip, income-producing common stocks and are quite conservative. Other equity funds take a more aggressive investment stance. They invest in companies with higher risk but greater growth potential. These funds are often called growth funds and their objective is to achieve above-average growth of capital.
Index Fund
This is a stock index mutual fund that holds a representative sample of the entire stock market. The objective of the fund is to give the investor the average return yielded by the stock market.
No-load Funds
No-load funds are mutual funds that do not charge a front-end fee; however, they can still charge back-end and annual fees.
Back-end Fees
Many mutual funds charge back-end or redemption fees according to a sliding scale: the longer you hold the fund, the less you will be charged.
What are the 7 adventages of using a mutual fund?
- Professional managment
- Diversification
- More reliable estimate of risk and return
- Past performance record
- Record Keeping and safekeeping
- Flexibility of purchase and sale
- Automatic reinvestment plan
