Mutual Fund Investment Objectives, Valuation, Sales Charge Flashcards
No-Load Mutual Fund Shares
Do not charge a selling charge so can sell to customers at NAV. Net Asset Value.
Distribution of Mutual Fund Shares
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Equity Funds
An equity fund is the only investment that will meet a growth objective. Equity funds invest in common stock and seek to outpace the economic growth. These funds do not produce dividends.
Equity Income Fund
Buys common and preferred stock with a long history of paying out dividends. (Blue Chip, Utilities, Preferred stock etc.)
Sector Funds
Mutual funds that concentrate more than 25% of their assets in one business area or region. Traditionally offers a higher risk/reward. Gold funds, tech funds are examples.
Index Funds
Designed to mirror the performance of a large market index such as the S&P 500 or the Dow Jones Industrial Average. Passively managed and therefore has a low management fee.
Growth and Income Fund
A combination fund that attempts to invest in common stock for growth and common and preferred stock for dividend payments.
Balanced Fund
Invests in both stocks and bonds at a predetermined ratio.
Asset Allocation Funds
invest in stocks, bonds, and money market instruments, according to the expected performance for each market.
Valuing Mutual Fund Shares
Mutual funds must calculate their value at least once a day. Most do this at the NYSE close. Assets-Liabilities = Net Asset Value.
NAV per Share
Net Asset Value per share = Total NAV/total No. of Shares
How will NAV change if: Value of securities in the portfolio increase.
NAV will increase
How will NAV change if: Portfolio receives investment income such as interest payments from bonds?
NAV will increase
How will NAV change if: the value of the securities in the portfolio decrease
NAV will decrease
How will NAV change if: the fund distributes dividends or capital gains
NAV will decrease
How do the following effect the NAV: investor purchases and redemptions, Portfolio purchases, sales of securities, sales charges?
No effect on the NAV.
Front-End Load
a sales charge that the investor pays when they purchase shares. AKA “A” Shares
Back-End Load
also known as a contingent differed sales charge. Investor pays sales charge at time of redemption of fund shares. AKA “B” shares.
Level-Load Funds
Funds that charge a level load based on NAV. “C” shares.
“D” Shares
Funds that charge an asset-based fee and back-end load.
12B-1 Fees
A quarterly asset based charge that must be approved by BOD, the majority of noninterested Board members, and majority of outstanding shares. To discontinue only majority of noninterested Board members and majority of outstanding shares is needed. This fee covers printing of prospectuses and certain sales commissions to agents.
Limits of 12B-1 Fees
No-load funds can only charge a 12B-1 fee equal to .25% of asset value. Other funds may charge .75%. All 12B-1 are reviewed quarterly.