Chapter 12 : Mutual Funds and Exchange-Traded Funds

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Chapter 12 : Mutual Funds and Exchange-Traded Funds by Mind Map: Chapter 12 : Mutual Funds and Exchange-Traded Funds

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. [email protected] 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. Types of MF - 13

5.1. 1. Growth Fund

5.2. 2. Aggressive Growth Fund

5.3. 3. Value Fund

5.4. 4. Equity-income Fund

5.5. 5. Balanced Fund

5.6. 6. Growth-and-Income Fund

5.7. 7. Bond Fund

5.8. 8. Money Market Fund

5.9. 9. Index Fund

5.10. 10. Sector Fund

5.11. 11. Socially Responsible Fund

5.12. 12. Asset Allocation Fund

5.13. 13. International Fund

6. Calculate the return

6.1. 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)

7. Drawbacks

7.1. Substantial Transaction costs. Exp : management fee and commission fee on load funds

7.2. Lower-than-Market Performance. (difficult to consistently beating the market)

8. MF Investor Services

8.1. Automatic Investment Plans

8.2. Automatic Reinvestment of Interest, Dividends and Capital Gain.

8.3. Systematic Withdrawal Plans

8.4. Conversion (Exchange Privileges)

8.5. Phone Swithching

8.6. Easy Establishment of Retirement Plans

9. How MF are organized

9.1. 1. management company run the fund daily operations

9.2. 2. Investment advisor buys and sells stock/bonds and oversee investment portfolio

9.3. 3. Distributor sell the fund shares direct to public or through broker

9.4. 4. Safeguard the securities

9.5. 5. Keep track of purchase and redemption requests from shareholders

10. Investor uses of MF

10.1. Accumulation of Wealth

10.2. Storehouse of Value

10.3. Speculation and Short-Term Trading

11. The management company(6)

11.1. 1. Open-End Investment Companies

11.2. 2. Closed-End Investment Companies

11.3. 3. Exchange-Traded Funds

11.4. 4. Unit Investment Trusts

11.5. 5. Real Estate Investment Trust

11.6. 6. Hedge Funds

12. Select MF?

12.1. 1. Determine to use mutual fund in portfolio

12.2. 2. Compare mutual fund investment objective to investor objective

12.3. 3. Compare range of service offered

13. Fees

13.1. Load Fund (charge commission when share bought)

13.2. No load fund (does not charge commission when share bought)

13.3. Low-load Fund (charge small commission when share bought)

13.4. Back-end-load (charge on sale of share)

13.5. 12(b)-1 fee (fee charge to cover management and other costs)

14. Factors In Comparing MF

14.1. Investment performance

14.2. Tax efficiency

14.3. Fee structure

14.4. How particular fund fits into your portfolio

14.5. Investment skills of fund managers

14.6. Load or No load funds

14.7. Closed-End or Open-End funds