You are planning to invest $200 per month into one of three mutual funds. Mutual Fund A has a 5% load charge and a 0.5% annual expense ratio. Mutual Fund B has no load charge and a 1.25% annual expense ration. Mutual Fund C has no load charge and a 0.5% annual expense ratio. If your investment horizon is 4 years and you anticipate a 9% rate of return (compounded monthly), what is the total cost (in $) for each of the 3 funds. What if your investment horizon is 35 years?
Discuss under what types of investor horizons class A shares would be preferred to class C shares for a mutual fund investor? How about a situation where class C shares might be preferred?
Explain how a fund with low turnover may be better than a fund with high turnover.
Consider a strategy where an investor reallocates his wealth each year to put 20% of his investment portfolio into each of the top 5 performing mutual funds from the previous year. Is this likely to be an effective strategy? Explain.
Explain the difference between a hedge fund and a mutual fund.