Topic 11 - Investing in mutual funds. This topic presents the following content: Pooled diversification, attractions and drawbacks of mutual fund ownership, essential characteristics, types of funds (equity), special services, risk. | Investing in Mutual Funds Topic 11 A. Pooled Diversification 1. Professional Money Managers 2. Combines the Funds of many people with similar investment goals 3. Receive shares of stock in the mutual fund; a pooled common investment. 4. An indirect investment B. Attractions and Drawbacks of Mutual Fund Ownership 1. Diversification 2. Full-time Professional Management 3. Modest Capital Investment 4. Services offered a. Automatic reinvestment of dividends b. Withdrawal plans c. Exchange privileges d. Check writing privileges B. Attractions and Drawbacks of Mutual Fund Ownership 5. Convenience a. Easy to acquire b. Paperwork and record keeping c. Prices (NAV) are widely quoted 6. Lack of liquidity a. Normally must be sold back to the fund b. No brokerage commissions 7. Consistently average to below average performance C. Essential Characteristics 1. Open-end Funds ($ trillion) a. Investors buy and sell shares back to the fund itself b. There is no limit on the number of shares the fund can issue c. NET ASSET VALUE (NAV) Defined as the total market value of all securities held by the fund less liabilities, divided by the number of fund shares outstanding. 5 Open-end Funds In an open-end mutual fund, shares are issued and redeemed daily by the fund's sponsor (the issuer of the fund). By design, these funds are always traded at their actual cash value, also known as net asset value (NAV), which is calculated on a per-share basis before sales charges are applied. Moreover, while this is the most popular type of fund, it is not necessarily the best for those seeking income. C. Essential Characteristics (continued) 2. Closed-end Funds a. A fixed number of shares outstanding b. 600 Closed-end funds c. $279 (2013) billion market value 3. Investment Trusts a. Interest is an unmanaged pool of investments b. Usually consist of corporate, government, or municipal bonds Closed-end Funds Closed-end mutual funds, which generally provide more income to investors, issue all . | Investing in Mutual Funds Topic 11 A. Pooled Diversification 1. Professional Money Managers 2. Combines the Funds of many people with similar investment goals 3. Receive shares of stock in the mutual fund; a pooled common investment. 4. An indirect investment B. Attractions and Drawbacks of Mutual Fund Ownership 1. Diversification 2. Full-time Professional Management 3. Modest Capital Investment 4. Services offered a. Automatic reinvestment of dividends b. Withdrawal plans c. Exchange privileges d. Check writing privileges B. Attractions and Drawbacks of Mutual Fund Ownership 5. Convenience a. Easy to acquire b. Paperwork and record keeping c. Prices (NAV) are widely quoted 6. Lack of liquidity a. Normally must be sold back to the fund b. No brokerage commissions 7. Consistently average to below average performance C. Essential Characteristics 1. Open-end Funds ($ trillion) a. Investors buy and sell shares back to the fund itself b. There is no limit on the number of shares the .
