Chapter 13 - Investing in mutual funds. In this chapter, you will learn to: Explain the characteristics of mutual fund investments, classify mutual funds by investment objective, evaluate mutual funds, describe how and why mutual funds are bought and sold. | 13 Investing in Mutual Funds Mutual Fund = an investment vehicle offered by investment companies to those who wish to: Pool money Buy stocks, bonds, and other financial securities Have buy/sell decisions made by fund manager Many mutual funds chosen for inclusion in retirement account investments (., 401(k)s) 13- Objective 1 Explain the Characteristics of Mutual Fund Investments Investment Company Pools the money of many investors – its shareholders – to invest in a variety of securities Employs fund manager who is compensated for selecting securities appropriate to the fund’s stated objective “Financial Intermediary” 13- How a Mutual Fund Works Why Investors Purchase Mutual Funds Professional Management Who is the fund’s manager? How has the fund performed under the current managers? Diversification Investor’s funds are used to purchase a variety of investments (shares of many different companies) Risk reduction 13- Characteristics of Funds Closed-End Funds (7% of all Mutual Funds) Fixed number of shares issued when the fund is organized Trade like shares of common stock on stock exchanges Trade price set by supply & demand Actively managed Most sell at a discount relative to their net asset value Exchange-Traded Funds (6% of all Mutual Funds) Invests to replicate the composition of a specific securities index Performance mirrors index performance Low management fees Trade on exchanges throughout the day like stock Prices determined by supply and demand Can be sold short and traded with limit orders Open-End Mutual Funds (87% of all Mutual Funds) Shares issued and redeemed on demand Actively managed 13- Net Asset Value Net Asset Value (NAV): Current market value of assets held by a fund AUM = “Assets Under Management” Net Assets = Fund Assets (AUM) - Liabilities NAV calculated at the close of trading 13- Example: $52,500,000 value of fund net assets 3,500,000 number of shares = $15 per share Open-End Funds Open-End Funds ≈ Majority of . | 13 Investing in Mutual Funds Mutual Fund = an investment vehicle offered by investment companies to those who wish to: Pool money Buy stocks, bonds, and other financial securities Have buy/sell decisions made by fund manager Many mutual funds chosen for inclusion in retirement account investments (., 401(k)s) 13- Objective 1 Explain the Characteristics of Mutual Fund Investments Investment Company Pools the money of many investors – its shareholders – to invest in a variety of securities Employs fund manager who is compensated for selecting securities appropriate to the fund’s stated objective “Financial Intermediary” 13- How a Mutual Fund Works Why Investors Purchase Mutual Funds Professional Management Who is the fund’s manager? How has the fund performed under the current managers? Diversification Investor’s funds are used to purchase a variety of investments (shares of many different companies) Risk reduction 13- Characteristics of Funds Closed-End Funds (7% of all
