Objective [1]
Describe the characteristics of mutual fund investments.
The major reasons investors choose mutual funds are professional
management and diversification. Mutual funds are also a
convenient way to invest money. There are three types of mutual
funds. A closed-end fund is a mutual fund whose shares are
issued only when the fund is organized. An exchange-traded
fund (ETF) is a fund that invests in the stocks contained in a
specific stock index like the Standard & Poor's 500 stock index.
Both closed-end funds and exchange-traded funds are traded on
a stock exchange or in the over-the-counter market. An openend
fund is a mutual fund whose shares are sold and redeemed
by the investment company at the net asset value (NAV) at the
request of investors. Mutual funds are also classified as load or
no-load funds. A load fund charges a commission every time
you purchases shares. No commission is charged to purchase
shares in a no-load fund. Mutual funds can also be classified as
A shares (commissions charged when shares are purchased), B
shares (commissions charged when money is withdrawn during
the first five years), and C shares (no commission to buy or sell
shares, but higher, ongoing 12b-1 fees). Other possible fees include
management fees, contingent deferred sales loads, and
12b-1 fees.
Objective [2]
Classify mutual funds by investment objective.
The major categories of stock mutual funds, in terms of the
types of securities in which they invest, are aggressive growth,
equity income, global, growth, growth and income, index, international,
midcap, regional, sector, and small-cap. There are also
bond funds that include high-yield, insured municipal, intermediate
corporate, intermediate U.S. government, long-term corporate,
long-term U.S. government, municipal, short-term
corporate, short-term U.S. government, and world. Finally,
other funds invest in a mix of different stocks, bonds, and other
investment securities that include asset allocation funds, balanced
funds, and money market funds. Today many investment
companies use a family-of-funds concept, which allows shareholders
to switch their investments among funds as different
funds offer more potential, financial reward, or security.
Objective [3]
Evaluate mutual funds for investment purposes.
The responsibility for choosing the "right" mutual fund rests
with you, the investor. The information on the Internet, in newspapers,
in the prospectus and annual reports, in financial publications,
and from professional advisory services can all help
you evaluate a mutual fund.
Objective [4]
Describe how and why mutual funds are bought and sold.
The advantages and disadvantages of mutual funds have made
mutual funds the investment of choice for many investors. For
$250 to $3,000 or more, you can open an account and begin investing.
The shares of a closed-end fund or exchange-traded
fund are bought and sold on organized stock exchanges or the
over-the-counter market. The shares of an open-end fund may
be purchased through a salesperson who is authorized to sell
them, through an account executive of a brokerage firm, from a
mutual fund supermarket, or from the investment company that
sponsors the fund. The shares in an open-end fund can be sold
to the investment company that sponsors the fund. Shareholders
in mutual funds can receive a return in one of three ways: income
dividends, capital gain distributions when the fund buys
and sells securities in the fund's portfolio at a profit, and capital
gains when the shareholder sells shares in the mutual fund at a
higher price than the price paid. Anumber of purchase and withdrawal
options are available.
