Test 3- Chapter 23 Mutual Funds Flashcards
Entity that pools funds from consumers & businesses and invest in securities (stocks, bonds, real estate, etc)
mutual funds
what are some advantages of mutual funds?
professional management of money
more efficient than DIY (often lower cost)
provides liquidity and diversification
what is the primary source of revenue for mutual fund brokers?
expense ratio
how much is the expense ratio on average?
.74%
why do they charge an expense ratio?
an expense to manage your money
what is a front-end load?
charge when you buy the fund
what is a back end load?
charge when you sell funds
Most load funds are typically _______ end loads
front
everytime you invest in a new mutual fund you pay the
load
What is an index fund?
tracks an index
for example the S&P 500 and Wilshire 5,000
what are some advantages of having an index fund?
typically there’s no load and low expenses
you get the market
most professionals say that the _____ or at least half of your investments should be in mutual funds
core
what are money market mutual funds?
invest in short term securities
Money market mutual funds:
were the bank killer fund
most investors have ____
good place to park your ______
many people get their paychecks directly deposited to this and then divvy up money
___________ account
if you want the cash you have to move the money to a bank, but many money market accounts have _______
one
cash
intermediary
checks
What are growth funds?
higher than average earnings & sales growth, with a high price to earnings ratio
what are value funds?
low price to earnings ratio, dividend paying, but slower growth
most professionals will say what about growth and value funds?
that you should have both of them
what are international funds?
foreign only
what are global funds?
us & foreign
what are sector funds?
gold, healthcare, real estate investment trust
bond funds include what?
treasuries, corporate and munis
can be short, medium, and long term
can you purchase an overall bond market fund?
yes
Who are the regulators for mutual funds?
SEC
are mutual funds a typically safe investment?
generally very safe from fraud and administrative loss because mutual funds are highly regulated
what does the performance of mutual funds depend on?
risk and return on the market, if it’s managed or if it’s an index fund
in order to invest in hedge funds you must be?
an accredited investor
why must you be an accredited investor in order to buy into hedge funds?
because they are risky investments
accredited investors have qualified themselves as smart with their money
hedge funds are a fund for what?
wealthy, pensions, endowments and institutions
what do hedge funds invest in?
long, derivative, short, leverage
who is the main regulator for hedge funds?
SEC
are hedge funds heavily or lightly regulated
lightly, because they tend to be secretive about what they are investing in
how is the liquidity on hedge funds?
very limited, they give you a date you are allowed to sell on
In order to qualify as an accredited investor to be able to buy into a hedge fund you must?
pay the minimum upfront investment, plus you have to have a specific amount of money in the bank
do hedge funds tend to outperform the market?
nope
explain what private equity firms do?
company sees a mature firm, but believe it’s undervalued
private equity firm purchase the firm with debt in order to extract value out of the underperforming company
they then take the company private and restructure it
then the company typically has an IPO
typically takes 1-2 years
explain what venture capital firms do?
invest in start ups with high growth potential
