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Mutual funds

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  • 1. An Introductionto Mutual FundsPowerPoint Notes
  • 2. What are MutualFunds?  Mutual funds are a type of investment that takes money from many investors and uses it to make investments based on a stated investment objective.  Each shareholder in the mutual fund participates proportionally (based upon the number of shares owned) in the gain or loss of the fund.
  • 3. Why do People Investin Mutual Funds?  Mutual funds offer investors an affordable way to diversify their investment portfolios.  Mutual funds allow investors the opportunity to have a financial stake in many different types of investments.  These investments include: stocks, bonds, money markets, real estate, commodities, etc…  Individually, an investor may be able to own stock in a few companies, a few bonds, and have money in a money market account. Participation in a mutual fund, however, allows the investor to have much greater exposure to each of these asset classes.
  • 4. Continued Most mutual funds are professionally managed by an investment expert known as a portfolio manager. This individual makes all of the buying and selling decisions for the fund. There are thousands of different mutual funds in the United States. This provides investors with many options to help them achieve their investment objectives.
  • 5. Basic Mutual FundCategories  Mutual Funds can be divided into four basic categories based upon the funds investment objective.  These categories are: 1. Money Market Mutual Funds 2. Stock Mutual Funds 3. Index Funds 4. Bond Mutual Funds 5. Balanced Mutual Funds
  • 6. Money Market MutualFunds This is the most conservative type of mutual fund. The goal is to maintain the $1 value of its shares while providing income. Invests in high-quality, short-term securities such as certificates of deposit, U.S. Treasury Bills, and U.S. Treasury Notes. MMMF’s are an appropriate place for savings. These funds have typically offered higher interest rates than bank savings accounts. Money market mutual funds are not insured by the FDIC.
  • 7. Stock Mutual Funds Type of fund that invests in stocks. These funds are also known as equity funds. There are many different types of stock mutual funds. Some of the most common include:Large-cap funds, mid-cap funds, small-cap funds, income funds, growth funds, value funds, blend funds, international funds, and sector funds.
  • 8. Index Funds These are mutual funds whose holdings aim to track the performance of a specific stock market index. The most common index fund tracks the S&P 500. These index funds invest in the exact stocks (and in the same percentages) as those found in the S&P 500. Index funds also track bonds, real estate, and other types of assets. These funds are lower cost than other types of funds.
  • 9. Good News! It is time for us to begin watching a Nightly Business Report Video on Mutual Funds! With a question sheet of course! Don’t worry we will continue the PowerPoint during our next class!
  • 10. Bond Mutual Funds Type of mutual fund that invests in bonds. There are different types of bond mutual funds. Typically, bond mutual funds have the objective of providing stable income with minimal risk.
  • 11. Types of Bond MutualFunds  Short, Intermediate, and Long-Term U.S. Bond Funds  Short, Intermediate, and Long-Term Corporate Bond Funds  Municipal Bond Funds  High-Yield (junk) Bond Funds  We will talk more about bonds and bond funds later in this unit of study.
  • 12. Balanced Mutual Funds These are also known as hybrid funds. These mutual funds invest in stocks, bonds, and money markets. These are very diversified mutual funds. The stock portion of the fund provides the potential for capital appreciation, while the bond and money market portion provide income.
  • 13. The Mutual FundProspectus This is a legal document which describes the investment objective of the fund, the manner in which the fund is administered and operated, the fees and other pertinent information. The prospectus should be read thoroughly before making an investment decision.
  • 14. Load v. No LoadMutual Funds  A mutual fund that charges a commission to cover its administrative costs is called a load fund.  A front-end load charges the load when the shares are purchased, while a back- end load charges the load when the shares are sold.  A no-load mutual fund doesn’t charge a purchase or sales commission.
  • 15. Major Mutual FundCompanies  Vanguard, Fidelity, and T. Rowe Price are three of the world’s major mutual fund companies.  http://vanguard.com  http://fidelity.com  http://troweprice.com

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