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| mutual fund | an investment chosen by people who pool their money to buy stocks, bonds, and other financial securities selected by professional managers who work for investment companies. Can also be used for retirement accounts such as 401(k), 403 (b), individual accounts, and Roth IRAs. |
| what is the difference between the good and the best investors? | Good investors evaluate an investment before purchase. The best investors continue to evaluate their investments after the purchase. |
| Why is an investment in mutual funds based on the concept of opportunity cost? | Because you have to be willing to take some chances if you want to get larger returns. |
| How many muntual funds are there? | In 1999 there were over 7,500. |
| What are the major reasons investors purchas mutual funds? | Professional management and diversification. |
| Why does diversification make a mutual fund more secure? | Because an occasional loss incurred with one investment is usually offset by gains from other investments. |
| Investment company | a firm that, for a management fee, invests the pooled funds of small investors in securities apporpriate to its stated investment objectives. |
| Closed-end fund | A mutual fund whose shares are issued by an investment company only when the fund is organized. As a result, only a certain number of shares are available to investors. After all the shares originally issued have been sold, an investor can purchase shares from anothe investor who is willing to sell. Approximately 10% of all mutual funds are closed-end funds. |
| Open-end fund | A mutual fund whose shares are issued and redeemed by the investment company at the request of investors. Investors are free to buy and sell shares at the net asset value. Most Provide their investors with a wide variety of services, including payroll deduction programs, automatic reinvestment programs, automatic withdrawal programs, and the option to change shares in one fund to another fund within the same fund family. Aproximately 90% of all mutual funds are open-end funds. |
| net asset value (NAV) per share of an open-end mutual fund | is equal to the current market value of securities contained in the mutual fund's portfolio minus the mutual fund's liabilities, divided by the number of shares outstanding. Usually calculated at the close of each trading day. |
| with regard to cost how are mutual funds clasified? | as load funds and no-load funds. |
| What should you do before investing in mutual funds? | You should compare the cost of this type of investment with the cost of other investment alternatives, such as stocks or bonds. |
| Load fund or "A" fund | mutual fund in which investors pay a commission every time they purchase shares.The commission charge may be as high as 8 1/2% of the purchas price for investments under $10,000. |
| What is the average load price? | Between 3 and 5 % although many exceptions exist. |
| What is the "stated" advantage of a load fund? | the fund's sales force will explain the mutual fund to investors and offer advice as to when shares of the fund should be bought or sold. |
| no-load fund | a mutual fund in which the individual investor pays no sales charge. These funds have no sales people therefore you deal dirrectly with the investment company by telephone, Internet, or mail. Can also be bought from many discount brokers (Charles Schwab, Jack White & Company, Waterhouse Securities, and E*Trade) |
| What does the fact that no load fund offer the same investment opportunities as load funds indicated? | That you should investigate no load funds further before deciding which type of fund is best for you. |
| What is a management fee? | a fee charged by the investiment companies that sponsor mutual funds and is a fixed percentage of the fund's asset value. Today annual fees range between 0.25 and 1 percent depending on how long you own your mutual fund before making a withdrawl. The average fee is one half of 1% of fund's assets. |
| a cotingent deferred sales load | a 1 to 6 % charge than shareholders pay when they withdraw their investment from the mutual fund. Charged instead of an investors fee a purchase time. Generally the deferred charge declines until there is no withdrawal charge if you own the shares in the fund for more than five to seven years. |
| If all other factor are equal which fund is superior; one that charges a contingent deferral sales load or one that doesn't? | One that doesn't |
| 12b-1 fee or distribution fee | a fee that an investment company levies to defray the costs of advertising and marketing a mutual fund. Calculated on the value of a fund's assets per year. An ongoing fee that is changed on a yearly basis. |
| What is a true no-load fund? | One that neither has a sales fee nor a 12b-1 fee. |
| Class C shares | a fund with a high 12b-1 fee but with no sales load or contingent deferred sales fee (to attract new investors). Class C shares are the most expinsive over a long period of time. |
| What are the classifications of mutual funds?(three major categories) | Stock funds, bond funds, other funds |
| What are the different kinds of stock funds? | Aggressive growth fund or capital appreciation funds, equity income funds, global stock funds, growth funds, growth and income funds, index funds, international funds, mid-cap funds, regional funds, small-cap funds, utility funds. |
| What are the different kinds of bond funds? | High-yield (junk) bond funds, Insured municipal bond funds, intermediate corporate bond funds, intermediate U.S. bond funds, long-term corporate bond funds, long-term (U.S.) bond funds, Municipal bond funds, short-term corporate bond funds, short-term (U.S.) government bond funds. |
| What other funds are there? | Balanced funds, Money market funds, stock/bond blend funds |
| Family of funds | exists when one investment company manages a group of mutual funds. Each fund within the family has a different financial objective. Most investment companies offer exchange privileges that enable shareholders to switch amoung mutual funds in a fund family. |
| Market timer | an individual who helps investors decide when to switch their investments from one fund to another fund, usually within the same family of funds. |
| How should market timers be evaluated? | on their individual investment philosophy and their past performance. |
| What are the common (5) steps used by investors to evaluate mutual funds? | Determine your investment objectives, perform a finaicial checkup to make sure you are ready to invest, obtain the money you need to purchase mutual funds, find a fund with an objective that matches your objective, Evaluate, evaluate, and evaluate any mutual fund before buying or selling. |
| What should a fund's prospectus provide? | a statement describing the risk factor associated with the fund, description of the fund's past performance, statement decribing the type of investments contained in the fund's portfolio; information about dividends, distribution, and taxes; information about fund's management, info on limitations or requirements the fund must honor when choosing investments, the process investors can use to buy or sell shares in a fund, a description of services provided to investors and fees for services, if any, Information about how often a fund's investment portfolio changes (or turnover ratio). |
| What resources can help you evaluate a mutual fund? | mutual fund prospectus, mutual fund annual report, financial publications, professional advisory services, the internet |
| What are the three ways to earn money with a mutual fund? | income dividends, capital gain distributions, buy low and sell high. |
| Income dividends | the earnings a fund pays to shareholders after it has deducted expenses from its dividend and interest income. |
| capital gain distribution | the payments made to a fund's shareholders that result from the sale of a securities in the fund's portfolio. |
| If you choose to reinvest income distributions and capital gain distributions from you mutual fund into additional shares are the gains still taxable? | Yes |
| What are the advantages a mutual fund supermarket offers? | Instead of dealing with numerous investment companies that sponsor mutual funds, you can make one toll-free phone call to obtain information, purchas shares, ans sell shares in a large number of mutual funds. And, you receive one statement from the discount brokerage firm instead of receiving a statement from each investment company you deal with |
| reinvestment plan | a service provided by an investment company in which income dividends and capital gains distributions are automatically reinvested to purchase additional shares of funds. Most reinvestment plans allow shareholders to use reinvested money to purchase shares without habing to pay additional sales charges or commissions. |
| dollar cost averaging | allows you to averga many individual purchase pirces over a long period of time. Helps avoid the the problem of buying high and selling low. |
| What are you options when you purchase shares in an open-end mutual fund from an investment company? | regular account transactions, voluntary savings plans, contractual savings plans, and reinvestment plans. |
