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The Growth of the Mutual Fund Industry
 

The Growth of the Mutual Fund Industry

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    The Growth of the Mutual Fund Industry The Growth of the Mutual Fund Industry Presentation Transcript

    • The Growth of the Mutual Fund Industry
        • Mutual Fund Statistics
          • Almost 1 in 2 U.S. households invest in the stock market directly or through mutual funds
          • Over 8,000 mutual funds
          • Over $7 trillion of assets
    • Why Learn About Mutual Funds?
      • To choose investments in a retirement plan
      • To invest an insurance or divorce settlement
      • To get started as a new investor
      • To build a portfolio
      • To invest a year-end bonus or tax refund
      • To put what you read & hear in perspective
    • What is a Mutual Fund?
        • A mutual fund is:
        • a portfolio of stocks, bonds, or other
        • securities
        • collectively owned by many investors
        • managed by a professional investment company
    • Mutual Funds Make Money in Two Ways
      • Current income (dividends or interest earned on the portfolio investments)
      • Capital gains (selling securities that have gone up in value)
    • How the Investor Makes Money
      • Income distribution (dividends and interest that are passed on to investors)
      • Capital gains (an increase in a fund’s value)
      • Combination = total return
    • Forms of Mutual Fund Companies
      • Open-end: issues and redeems shares at any time
      • Closed-end: trades like a stock and issues a fixed number of shares
    • What Is Net Asset Value (NAV)?
      • The NAV is the price your fund pays you per share when you sell.
      • Value of fund
      • Number of shares = NAV
      • Example: $52,500,000
      • 3,500,000 = $15 per share
    • Why Mutual Funds vs. Individual Securities?
      • Individual securities:
        • Require time and expertise to analyze
        • Usually have higher transaction costs
        • Offer less probability of adequate diversification
        • OK if:
          • you have stock-picking expertise
          • you have $20-30K to buy 10-20 stocks
          • you are buying Treasuries
    • Advantages of Mutual Funds
      • 1) Full-time, professional management
      • 2) Reduced risk through diversification
      • 3) Earn competitive returns
      • 4) Small $ amount needed to start
      • 5) Retain ready access to your money
    • More Advantages of Funds
      • 6) Inexpensive way to invest
      • 7) Convenience
      • 8) Automatic withdrawal plans available
      • 9) Lower incidence of bankruptcy and fraud
      • 10) Monitoring fund investments is easy
    • Disadvantages of Mutual Funds
      • Funds follow market declines
      • No guaranteed rate of return
      • Unwanted taxable distributions
      • Record-keeping for tax purposes can be difficult
    • The Mutual Fund Marketplace
      • Stock funds
      • Bond funds
      • Money market funds
    • Types of Funds by Investment Objective
      • Growth
      • Income
      • Growth & income
      • Capital preservation
    • Match Your Goal to the Right Fund Categories with a growth objective
      • Growth
      • Aggressive growth
      • Small cap
      • Specialty (Sector)
      • International
      • Global
      • Index
    • Match Your Goal Categories with an Income Objective
      • Income
      • Corporate bond
      • Municipal bond
      • High-yield (junk) bond
      • Government bond
      • GNMA
      • Global bond
    • Match Your Goal Funds with Growth & Income Objective
      • Equity-income
      • Growth & income
      • Balanced
    • Match Your Goal Funds with a Preservation of Capital Objective
      • Taxable money market
      • Tax-free money market
    • Match Your Goal Funds with All Four Objectives
      • Lifestyle
      • Asset allocation
      • Fund of funds
    • Risk and Return Relationship
      • The higher the level of risk, the higher the expected return
              • Sector
              • Aggressive Growth
              • International
              • Growth
              • Stock Index
              • Lifestyle
              • Growth & Income
              • Equity-Income
              • Balanced
              • Income
              • Bond
              • Money Market
    • Mutual Fund Costs
      • Sales charges/loads
          • Sales commissions
      • Operating expenses
          • Management fees
          • Marketing costs
          • Overhead expenses
    • Types of Funds by Sales Charge
      • No-load -- No sales commission
      • Load -- 4%-8.5% commission
      • Back-end load -- Declining 6%-1%
      • Low-load -- 1%- 3%
    • Mutual Fund Operating Expenses
      • Management and administrative fees
      • 12b-1 fee for marketing and distribution
      • Redemption fee
      • CHECK OVERALL EXPENSE RATIO
    • Mutual Fund Economics
      • Costs and Fees A Shrs B Shrs C Shrs
      • Sales Load 5.5% None None
      • Redemption Fee None 0.5% None
      • Marketing Fee .25% .75% 1.00%
      • Management 1.30% 1.15% 1.20%
      • Annual Expense 1.55% 1.90% 2.20%
    • Avoid Above-Average Expense Ratios
      • Stock funds > 1.4%
      • Bond funds > 1.00%
      • Money market funds > 0.5%
    • Seven Steps to Finding the Right Fund
      • 1) Identify type of fund that matches goal
      • 2) Do more reading
      • 3) Research specific funds
      • 4) Determine selection criteria
      • 5) Get and read the prospectus
      • 6) Make your purchase
      • 7) Establish a schedule to buy more
    • Step 1 -- Identify Types of Funds That Will Help You Reach Your Goals
      • Focus your search
      • Begin building your portfolio
      • Establish an asset allocation strategy
    • Step 2 -- Do More Reading
      • Mutual Funds For Dummies - Eric Tyson
      • Guide To Successful No-Load Investing - Sheldon Jacobs
      • The Right Way To Invest In Mutual Funds - Walter Updegrave
      • Bogle on Mutual Funds and Common Sense on Mutual Funds - John Bogle
    • Step 3 -- Research Specific Funds
      • Personal finance publications
      • Business newspapers
      • Mutual fund trade associations
      • Library references
      • Fund-provided information
      • Professional advisors
    • Personal Finance Publications
      • Money
      • Kiplinger’s Personal Finance
      • Forbes
      • Business Week
      • Smart Money
    • Newspapers & Trade Associations
      • The Wall Street Journal
      • Barron’s
      • The New York Times
      • USA Today
      • Investment Company Institute
      • Mutual Fund Education Alliance
    • Library & Fund-Provided Info
      • Morningstar
      • Value Line
      • Lipper Analytical
      • Annual reports
      • SAI
      • Prospectus
    • Internet Sites
      • <www.morningstar.com>
      • <www. networth.galt.com>
      • <www. brill.com>
      • <www. ici.org>
      • <www. mfea.com>
      • <www.sec.gov/mfcc/mfcc-int.htm>
    • Step 4 -- Determine Your Selection Criteria
      • Fund objective (relative to your goal)
      • Cost to purchase (no-load vs. load)
      • Fund fees/expense ratio
      • Investment minimum
      • Manager tenure
      • Performance (1, 3, 5 years)
      • Longevity
    • Step 5 -- Get a Prospectus for Each Fund from:
      • Mutual fund families
      • Mutual fund supermarkets/networks
      • Full-service & discount brokers
      • Financial planners
      • Banks
      • Internet
    • Step 6 -- Make Your Purchase
      • By mail
      • Local investment center
      • Toll-free 800 number for assistance
      • Through a broker or financial planner
      • On-line
    • Step 7 -- Continually Buy More
      • Use a dollar-cost-averaging system--Investing a fixed number of dollars, e.g., $50 or $100, at periodic intervals, usually monthly or quarterly
    • Dollar-Cost-Averaging
      • Month Amount Invested Share Price Shares Purchased Cumulative Value
      • January $150 $30 5 $150.00
      • February $150 $30 5 $300.00
      • March $150 $25 6 $400.00
      • April $150 $25 6 $550.00
      • May $150 $20 7.5 $590.00
      • June $150 $15 10 $592.50
      • July $150 $15 10 $742.50
      • August $150 $15 10 $892.50
      • September $150 $20 7.5 $1,340.00
      • October $150 $25 6 $1,825.00
      • November $150 $30 5 $2,340.00
      • December $150 $30 5 $2,490.00
      • TOTAL $1,800 $280 83 $2,490.00
      • Average Cost $21.69 per share Average Price $23.33
    • Final Hints:
      • Invest for your goals
      • Research funds carefully with a questioning attitude
      • Review progress quarterly, comparing “apples with apples”
      • Read your mail
      • Keep excellent records
    • Take These Action Steps
      • Make a list of long- and short-term financial goals and match them with an appropriate mutual fund
      • Learn about mutual fund choices available through your employer’s retirement plan
      • Decide on your selection criteria
      • Identify specific mutual funds that match your investment goals
    • Take These Action Steps
      • Call at least three mutual fund organizations for a prospectus.
      • Do follow-up research and compare at least three mutual funds using Morningstar or Value Line.
      • Complete a mutual fund application and make an investment.