Chapter 12 : Mutual Funds and Exchange-Traded Fundspor You Ting
1. Definition
1.1. Mutual fund is an investment company that invest its shareholders money in a diversified portfolio of securities
2. Other Fees
2.1. Management fees-compensation paid to professional manager.(fee charged annually on average net asset)
2.2. Adminstrative costs-normal costs of doing business
3. Sources@Return from MF
3.1. Dividend income
3.2. Capital gains distributors
3.3. Change in price(unrealized capital gain)
4. Attractions
4.1. portfolio diversification(invest in numerous securities to reduce the risk)
4.2. professional management
4.3. ability to invest small amounts
4.4. Convenience (easy to sell and buy)
5. Select MF?
5.1. 1. Determine to use mutual fund in portfolio
5.2. 2. Compare mutual fund investment objective to investor objective
5.3. 3. Compare range of service offered
6. Fees
6.1. Load Fund (charge commission when share bought)
6.2. No load fund (does not charge commission when share bought)
6.3. Low-load Fund (charge small commission when share bought)
6.4. Back-end-load (charge on sale of share)
6.5. 12(b)-1 fee (fee charge to cover management and other costs)
7. Factors In Comparing MF
7.1. Investment performance
7.2. Tax efficiency
7.3. Fee structure
7.4. How particular fund fits into your portfolio
7.5. Investment skills of fund managers
7.6. Load or No load funds
7.7. Closed-End or Open-End funds
8. Types of MF - 13
8.1. 1. Growth Fund
8.2. 2. Aggressive Growth Fund
8.3. 3. Value Fund
8.4. 4. Equity-income Fund
8.5. 5. Balanced Fund
8.6. 6. Growth-and-Income Fund
8.7. 7. Bond Fund
8.8. 8. Money Market Fund
8.9. 9. Index Fund
8.10. 10. Sector Fund
8.11. 11. Socially Responsible Fund
8.12. 12. Asset Allocation Fund
8.13. 13. International Fund
9. Calculate the return
9.1. Holding period return = (Number of Share at end of period x ending price) - (Number of share at beginning x initial price) / (Number of share at beginning of period x initial price)
10. Drawbacks
10.1. Substantial Transaction costs. Exp : management fee and commission fee on load funds
10.2. Lower-than-Market Performance. (difficult to consistently beating the market)
11. MF Investor Services
11.1. Automatic Investment Plans
11.2. Automatic Reinvestment of Interest, Dividends and Capital Gain.
11.3. Systematic Withdrawal Plans
11.4. Conversion (Exchange Privileges)
11.5. Phone Swithching
11.6. Easy Establishment of Retirement Plans
12. How MF are organized
12.1. 1. management company run the fund daily operations
12.2. 2. Investment advisor buys and sells stock/bonds and oversee investment portfolio
12.3. 3. Distributor sell the fund shares direct to public or through broker
12.4. 4. Safeguard the securities
12.5. 5. Keep track of purchase and redemption requests from shareholders
