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Reliance Money is a comprehensive electronic transaction platform offering a wide range of asset classes. Its endeavour is to change the way India transacts in financial markets and avails financial services. Reliance Money is a single window, enabling you to access, amongst others in Equities, Equity & Commodities Derivatives, Mutual Funds, IPOs, Life & General Insurance products , Offshore Investments, Money Transfer, Money Changing and Credit Cards. Reliance Money is a group company of Reliance Capital; one of India's leading and fastest growing private sector financial services companies, ranking among the top 3 private sector financial services and banking companies, in terms of net worth Reliance Capital Ltd. has interests in asset management, life and general insurance, private equity and proprietary investments, stock broking and other financial services.

Our belief
We believe that you are the force behind the company. And with your growth will come the drive that can take this company to higher and stronger levels. Creating a huge wave of satisfaction, not only for our customers and us, but for your career as well.

Why us?
Whatever your career goal, Reliance Money is a company big enough for your dreams. We, along with the other businesses of Reliance Capital, enjoy a strong position in the financial services category. And this may be the place where you can have the career you always wanted.

We endeavor to be unique in creating an environment that makes pitting your skills against the world a challenging, stimulating and energizing experience. Here, we believe that bigger the challenges that we set for ourselves, the higher they will take us. And finding resonance with this credo is our ever-increasing workforce.

What do we offer? With us you will experience and be a part of :

Opportunities for lateral growth within the company, Performance management system based on the balanced scorecard model Exposure to extensive learning and developmental initiatives (that includes a state of the art e-learning platform and strategic partnerships with international leaders for special developmental programs) Annual awards in recognition of exemplary performance A stimulating and high energy environment with regular interactive, fun events and challenging contests .and lots more

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Easy Trad e Log in to the new & improved Easy Trade: Simple HTML Order Entry Form View Market Depth and your Limits statement on the same screen Place order in 3 easy steps Acces your Investment portfolio Access Trading + Investment products such as IPO and Mutual Funds etc. Available to all Reliance money trading customers Common RMS (Risk Management System) Work efficiently with slow internet connectivity

Insta Trad e Its a browser based software and requires Java application for streaming data for scripts in market watch Features: Create multiple market watch, with 30 scrips in each market watch Key Board shortcuts available - F1, F2, F6 (+), (-) "Insert" and "Delete. Add NSE, BSE, FONSE and ETFs on the same market watch. Trade data concurrency i.e. orders / trades placed from Easy trade, Insta trade, franchisee, kiosk or call center can be viewed here. All trade reports and history reports available. System requirement: PCs in network/LAN might require port opening to run this product. JVM required (available on our FTP) to run the product.

Fast Trad e Browser based platform requires basic HTML technology for running the product. Can create up to 5 market watches per client with 25 scrips in each of them. Add NSE, BSE, FONSE and ETFs on the same market watch. View prices place orders on the same screen. Key Board shortcuts available - F1, F2, F6 (+), (-). Look and Feel + Reports - same as in Insta Trade Manual Refresh is required Refresh when you want price updates. No JVM required. No port opening required. Trade data concurrency i.e. orders / trades placed from easy trade, Insta trade, franchisee, kiosk or call center can be viewed here. System requirement:- Basic HTML technology required for running the product.

Mutual Fun d Its a browser based trading platform gives you the benefit of streaming data with the flexibility of trading on any Internet system Simply login to your Reliance Money account. Go to the trading section and click on Mutual Funds. Click on PLACE ORDER link and then choose any mutual fund you want to invest. Now select Purchase and then click on 'PROCEED'. Finally, choose the 'SCHEME' you want to invest, and click on 'GO'.

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Reliance money mailbox now on Windows Live Important features which are present in Windows Live mail box are: Instant access to Inbox from our trading portal, without entering Email id and password. 5GB mail Box as against 10MB today. Option to Forward Mails out of your Reliance Money Email account. More secured authentication with your PAN Number (during off market hours). Along with all other features provided by Windows Live .

Mobile Tradin g With access to Rmoney.mobi on the mobile you can now place and track your order in BSE, NSE, MCX and NCDEX on real time basis. This facility is available to Reliancemoney Demat account holders across all GPRS and CDMA enabled mobile devices independent of operator and the underlying carrier technology. Along with Trading on mobile you can also keep a track of: Intraday Positions / Trading limits Demat Balance/ Portfolio Latest market news/ Global Markets Stock quotes and much more!

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NFO/ Dividend Update| Fll Investments| MF Investments | View Snapshot | Top Gainers| Top Losers| Focus of Money Advisor Month|Fund Ranking| Fund Comparison| SIP Calculator| News NFO/ Dividend Update| Fll Investments| MF Investments | View Snapshot | Top Gainers| Top Losers| Focus of Month|Fund Ranking|

Fund Comparison| SIP Calculator| News

Top Performing Funds/Schemes

more>> Back Focus of Month Jun 29 2009 12:02PM HDFC Top 200 Fund An Open Ended Growth Scheme more>>

Equity Hybrid Debt All Funds Nav Percentage Returns 2yr 3yr

News
Jul 08 2009 17:46 Franklin Build India Fund floats on NFO period from 10 July - 8 August 2009

more>>

4yr

Reliance Diversified Pow... 62.35 16.59 36.60 44.68 Jul 08 2009 17:10 Mutual funds in buying mode Purchases worth Rs 196.30 crore on 7 July 2009 Reliance Diversified Pow... 62.35 16.59 36.60 44.68 Jul 08 2009 16:21 Reliance Banking Fund - ... 57.41 33.77 31.61 27.63 Franklin Templeton MF files an offer document with Sebi Plans to launch Templeton India Income Opportunities Fund Reliance Banking Fund - ... 57.41 33.77 31.61 27.63 (TIIOF) IDFC Premier Equity Fund... Funds

19.54 7.22 26.75 Nav Percentage Returns 2yr 3yr 4yr

Principal Child Benefit ... Principal Child Benefit ... Birla Sun Life '95 Fund ... DSP BR Balanced Fund (... HDFC Prudence Fund (G)...

66.73 -4.56 16.81 22.33 65.77 -4.63 16.75 22.31 219.56 22.69 16.20 23.14

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47.09

8.46

14.77 21.60

Choice of investment strategies From just two scheme types (equity scheme and debt scheme) offered when the mutual fund industry w...

133.40 18.78 14.59 24.92

Funds

Nav

Percentage Returns 2yr 3yr 4yr

ICICI Pru Gilt Fund - In... ICICI Pru Gilt Fund - In... Canara Robeco Income (Gr...

18.19 41.96 18.37 12.38 31.62 31.06 14.74 9.74

18.99 30.49 14.10 11.00

Templeton India G-Sec Fu... 22.74 24.40 13.12

8.98

Funds

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Scheme Name IDFC Enterprise Equity Fund - B (G) IDFC Enterprise Equity Fund - B (D) Edelweiss Gilt Fund (G) Edelweiss Gilt Fund (D) Shinsei PSU Bond Fund - UST Plan (G) Mutual fund partners

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Mutual Funds

Mutual Fund: an investment company that

invests its shareholders money in a diversified portfolio of securities Investors own a share of the fund proportionate to the amount of the investment First started in 1924

 More mutual funds in existence today than stocks

listed on NYSE and AMEX combined Nearly half of all U.S. households own mutual funds Highly Regulated Investment Company Act of 1940.
Attractions of Mutual Funds
Diversification
Owning

numerous securities reduces risk Professional management Ability to invest small amounts Service Automatic reinvestment of dividends Withdrawal plans Exchange privileges Convenience Easy to buy and sell; high liquidity Funds handle recordkeeping Easy to track prices

5

Drawbacks of Mutual Funds

Substantial transaction costs Management fee Commission fees on load funds Lower-than-market performance Consistently beating the market is difficult Many mutual funds just keep even with overall stock market index
6

Fund Descriptions
Mutual
Actively

Funds
Managed

Index Sector Funds Open Ended Closed No Load Load

Front

Mutual Funds
2

Mutual Funds
Mutual

Fund: an investment company that invests its shareholders money in a diversified portfolio of securities Investors own a share of the fund proportionate to the amount of the investment First started in 1924 More mutual funds in existence today than stocks listed on NYSE and AMEX combined Nearly half of all U.S. households own mutual funds Highly Regulated Investment Company Act of 1940.
3

Outline
Mutual Funds ETFs REITs
4

Attractions of Mutual Funds

Diversification Owning numerous securities reduces risk Professional management Ability to invest small amounts Service Automatic reinvestment of dividends Withdrawal plans Exchange privileges Convenience Easy to buy and sell; high liquidity Funds handle recordkeeping Easy to track prices

Drawbacks of Mutual Funds

Substantial transaction costs Management fee Commission fees on load funds Lower-than-market performance Consistently beating the market is difficult Many mutual funds just keep even with overall stock market index
6

Fund Descriptions
Mutual

Funds

Actively Managed Index Sector Funds Open Ended Closed No Load Load

7

Front End Back End

Open-End Investment Companies

Investors buy and sell shares directly with the mutual fund company without a secondary market Have an unlimited number of shares Purchase and selling price is determined by the Net Asset Value (NAV) of the fund All purchases and sales are completed at the end of the day after the stock markets have closed
NAV = Value of all securities Liabilities total shares outstanding
8

Closed-End Investment Companies

Sell only the initial offering Subsequent trades are done in a secondary market, similar to the common stock market Have a limited number of shares Investment advisor doesnt have to worry about cash inflow or outflows Purchase and selling price is determined by supply and demand Generally sell at premium or discount (usually discount) to NAV
9

Load and No-Load Funds

Load fund: a mutual fund that charges a commission when shares are bought. Typically sold through a broker No-load fund: a mutual fund that does not charge a commission when shares are bought. Typically sold directly to investor by mutual fund Cost savings tend to give investors a head start in achieving superior rates of return Front End Load Commission Charged at the time of purchase Back End Load Commission charged when sold many times this is phased out.

10

Fees
Management Fee Typically a % of assets under management. 12(b)-1 fee: fee charged by some mutual funds to cover management and other operating costs; amounts to as much as 1% of the average net assets. Multiple-class sales charge: different shares classes of the same mutual fund are offered with different fee structures.

11

Exchange-Traded Funds (ETF)

A basket of securities designed to track a specific market index Similar to index mutual funds Trade like individual stocks on stock exchanges Can buy and sell ETFs any time of the day Low management expenses due to limited trading by investment advisor Low turnover helps avoid taxes until ETF is sold Types of ETFs Diamonds (DIA) track DJIA Spiders (SPY) track S&P 500


12

Qubes (QQQ) track NASDAQ 100 Many others.

Real Estate Investment Trusts

Construction and Development Trusts

Lend to builders

Mortgage Trusts
Long-term financing after construction period.

Equity Trusts
Own and manage the real estate.
Commercial Real Estate

Office buildings Retail space Infrastructure

13

Residential

Hedge Funds
Not really mutual funds; private limited partnerships Not regulated by mutual fund regulations General partner runs fund and takes 10-20% of profits; limited partners are investors Only sold to accredited investorsnet worth greater than $1,000,000 and/or annual income over $200,000 Use arbitrage strategies, options, short sales and other other complex strategies

14

Objectives of Mutual Funds Growth Aggressive Growth Growth and Income Value Income Balanced Fund Asset Allocation Funds Based on Age Bond Funds
1

ULIPs v/s Mutual Funds

The Choice Is Straightforward!
What are ULIPs? ULIPs are insurance plans which provide capital appreciation by investments in various schemes in debt and equity markets Key Negatives Complex Structures: More complex the product, higher is the associated cost proves to be true as ULIPs typically have a lot of hidden costs associated with them which no salesman will tell you High associated costs: Although ULIPs sound like a good idea to start with, one feels the pinch after a couple of years when the high costs associated with such structured products become more apparent Tax advantage turns into disadvantage: The tax benefits cease to exist when an individual wants to get out of a ULIP before three years i.e any contribution made towards the policy during the financial year (in which the plan is terminated) is not

eligible for a deduction under section 80C; not to mention the deductions that have already been taken in the previous years would be added back as the income of the individual in that particular year of policy termination Highly illiquid: Switch over between ULIPs of different insurance companies is not possible in case their performances are below par making them highly illiquid and restrictive in nature; not in case of mutual funds Death benefit: In case of ULIPs, policy holders gets either the sum assured or the value of the units s/he holds, whichever greater in case of death In case of mutual funds + term insurance, one avails the benefits of both; fund value and the sum assured in case of death In case an insurance company offers both the benefits, it is very likely that the premium allocation charges will be higher than usual What Should You Do Instead? Investment in diversified mutual funds to avail investment benefit Avail term insurance to insure oneself Why Term Insurance A term insurance allows an individual to take higher amount of cover with lower premiums No premium allocation costs; simply pay for taking life cover Why Equity Funds High liquidity as switching between schemes of different fund houses becomes easy Less upfront costs Investing in Index funds for long time frames proves to be a prudent option due to low cost structures and index linked returns
2

20 years Rs.97,500 Rs.32,420 Rs.1,29,920 Rs.45,000 Rs.62,000 15 years Rs.77,500 Rs.21,120 Rs.98,620 Rs.33,750 Rs.46,500 10 years Rs.57,500 Rs.13,820 Rs.71,320 Rs.22,500 Rs.31,000 Term Plan Premium Mutual Fund Cost Total cost incurred in ULIP Mortality Costs Policy ULIP Cost

Term ULIPs vis-a-vis Mutual Funds & Term Insurance The above charges are excluding the administration fees and fund management charges (1.0% 4.0%) in case of ULIPs. In case of mutual funds, typical expense ratios are around 1.0% 2.5%. ULIPs typically provide investors the option to invest in Liquid funds Debt or bond funds Balanced Funds Equity Funds Investing in debt and liquid funds proves to be a bad idea for the long term as capital appreciation is very low barely beating inflation Assume annual premium of Rs.1lac, Age=24, Sum assured = Rs.10lac Conclusion Large upfront costs, highly illiquid nature and difficult exit option make ULIPs a faulty insurance product Instead, availing a pure term plan suffices ones insurance need A minimum cover of 10*(Annual salary) should be taken as anything below that proves to be quite inadequate For long term investments, it is best that one avail a diversified equity fund or an index fund Policy holders get the benefit of both; capital appreciation and sum assured in case of death in a term insurance + mutual fund
3

PARK Financial Advisors is a financial planning company focusing on individuals. Our vision is to become trusted financial advisor to customers and to be thought leaders in personal finance. The defining elements of PARK are integrity, long term commitment to customers interests and intellectual edge. All four founding directors of PARK are alumni of IIM Ahmedabad and have worked in a variety of domains. Financial planning, in our view, is as much about ones dreams and aspirations as about managing finances. PARK aspires to help individuals concretize their dreams and work towards realizing them. We believe that financial wellbeing is an integral part of ones overall wellbeing and we aspire to be our customers partners in achieving the same!
PARK Financial Advisors Pvt. Ltd. 75, Empire Building, Dr. D.N. Road, Fort

Mumbai 400 001 (O) +91 22 22079101/02/03 (F) +91 22 22079104

info@parkfa.com www.parkfinadvisors.com
Almost everyone is discussing about Mutual Funds. Why should I choose to invest in Mutual Funds? Can it assure fixed returns? Big questions that get answered in few simple steps. The FiRSTSTEP program is made especially for beginners. It teaches you with step-bystep demos. From the very beginning, up to when youre ready to do your first trade. Sharekhan with his years of experience will help you through each step. From the right tools to the right information. He will simplify financial jargons like Asset Management, Portfolio Management, Money Market, Debt Mutual Funds, Equity Funds, Risk Factors and so on. So that you know exactly when, where, and how much to invest. On signing up for the program, you will receive an e-information kit, absolutely free. It contains all the basics of investment and an information brochure of FiRSTSTEP.

How to Buy Mutual Funds?

Is the time ripe to buy mutual funds? Buying mutual funds have never been difficult even considering the complexities involved in it. Mutual funds market has grown big enough in the last decade or so that it has almost always out performed the stock market. This article throws light on: How to pick a mutual fund from the huge pool of existing funds? When you can sell the mutual funds? How much you can earn from mutual funds? Those of you who are looking to investing money in order that higher returns can be made must have concluded stock market is too hot for you especially so when you are a new and a novice investor. But sulking that you are loosing out on action while others are walking to their banks merrily is not necessary. Take a look at the world of mutual funds. Mutual funds market has grown big enough in the last decade or so that it has almost always out performed the stock market. Yes, there is big money to be made in mutual fund investment too provided you played your cards with aplomb. How to Buy Mutual Funds? Buying mutual funds have never been difficult even considering the complexities involved in it. You can buy mutual funds as easily as 1-2-3. Here are the typical steps involved when you want to buy mutual funds You can buy mutual funds when mutual fund companies make initial public offerings. At this time you will usually have to pay the basic face value and not the market dictated price that includes a premium as in many cases. Filling out an application form with a payment of some initial deposit is all it takes.

Buying mutual funds called closed end funds is from stock exchanges. Closed end funds are initially sold by fund companies in limited numbers and they are listed in a stock exchange to facilitate trading by investors. These will be usually at premium prices or as dictated by demands in the market (higher demands for various reasons attract higher premiums). Buying mutual funds called closed end funds is from stock exchanges. Closed end funds are initially sold by fund companies in limited numbers and they are listed in a stock exchange to facilitate trading by investors. These will be usually at premium prices or as dictated by demands in the market (higher demands for various reasons attract higher premiums). You can also buy mutual funds (open end funds - funds purchasable perpetually from the company). Here the price at which you buy will be a figure called as NAV in the industry circles. This term stands for net asset value, a figure that denotes the current value of a share of the company after adding the earnings and deducting the expenses and taxes equally amongst all the number of shares. How do you mutual funds online? Most companies and banks that are in the mutual funds business facilitate online buying of mutual funds to their customers. They need you to have a trading as well as a demat account and connect your bank account to this. You can log on to a broker's or the company's own trading internet portal to be able to buy online. Once online you can choose from the array of exchange traded mutual funds (ETF) and open end funds too. Your trades will be either credited or debited to your demat account (an account to hold dematerialized shares - electronic form of shares) instantaneously. This is some what like you can transfer funds from your bank account. What Kind of Funds to Buy and how to pick From a Huge Pool of Existing funds? Well. It is not easy to pick from a really huge pool of funds. Add to it the spate of new public offers every now and then, to make things worse. But you have your objectives in place. If it is making money, you sure would not want to go to money market funds in a big way. Stock Funds for Growth You can bet a good chunk of your money on growth funds such as index funds and sector funds. These are also called as stock funds in a broader sense. Stock funds come in different varieties like index funds that invest and track specific index (S&P, DOWJONES etc) and sector specific funds that invest and track for example automotive sector. Do not pool your entire money in any one fund as it deprives you of growth benefits of other funds. 401 (k) Plans For retirement plans you can choose from many of the 401 (k) plans. These funds appreciate in value over long periods and carry lesser risk compared to growth funds. It is a tailor made fund for those looking for safer investment for retirement. The advantage here is your employer makes an equal contribution to yours and your contribution is from your before-tax salary. Your account will not be taxed until you withdraw thus paving way for faster growth. Balanced Funds

Balanced Funds or Managed Funds allocate assets in predetermined proportions among government securities (bonds, T-Bills) for safety and in stocks for rapid growth. Investment in stocks grow rapidly (rapid and higher growth are associated with risks too) while government securities give a sort of cushion with their definite but slow growth. Most funds let you switch allocation for a small fee. Exercise the switch over option when growth falls behind your expectation.

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Inevstment on Market

Mutual funds are investment companies that pool money from investors at large and offer to sell and buy back its shares on a continuous basis and use the capital thus raised to invest in securities of different companies. This article helps you to know in depth on: Is it possible to diversify investment if invested in mutual funds? Find more on the working of mutual fund Know more about the legal aspects in relation to the mutual funds At the beginning of this millennium, mutual funds out numbered all the listed securities in New York Stock Exchange. Mutual funds have an upper hand in terms of diversity and liquidity at lower cost in comparison to bonds and stocks. The popularity of mutual funds may be relatively new but not their origin which dates back to 18th century. Holland saw the origination of mutual funds in 1774 as investment trusts before spreading to Anglo-Saxon countries in its current form by 1868. We will discuss now as to what are mutual funds before going on to seeing the advantages of mutual funds. Mutual funds are investment companies that pool money from investors at large and offer to sell and buy back its shares on a continuous basis and use the capital thus raised to invest in securities of different companies. The stocks these mutual funds have are very fluid and are used for buying or redeeming and/or selling shares at a net asset value. Mutual funds posses shares of several companies and receive dividends in lieu of them and the earnings are distributed among the share holders. A Brief of How Mutual Funds Work Mutual funds can be either or both of open ended and closed ended investment companies depending on their fund management pattern. An open-end fund

offers to sell its shares (units) continuously to investors either in retail or in bulk without a limit on the number as opposed to a closed-end fund. Closed end funds have limited number of shares. Mutual funds have diversified investments spread in calculated proportions amongst securities of various economic sectors. Mutual funds get their earnings in two ways. First is the most organic way, which is the dividend they get on the securities they hold. Second is by the redemption of their shares by investors will be at a discount to the current NAVs (net asset values). Are Mutual Funds Risk Free and What are the Advantages? One must not forget the fundamentals of investment that no investment is insulated from risk. Then it becomes interesting to answer why mutual funds are so popular. To begin with, we can say mutual funds are relatively risk free in the way they invest and manage the funds. The investment from the pool is well diversified across securities and shares from various sectors. The fundamental understanding behind this is not all corporations and sectors fail to perform at a time. And in the event of a security of a corporation or a whole sector doing badly then the possible losses from that would be balanced by the returns from other shares. This logic has seen the mutual funds to be perceived as risk free investments in the market. Yes, this is not entirely untrue if one takes a look at performances of various mutual funds. This relative freedom from risk is in addition to a couple of advantages mutual funds carry with them. So, if you are a retail investor and planning an investment in securities, you will certainly want to consider the advantages of investing in mutual funds. Lowest per unit investment in almost all the cases Your investment will be diversified Your investment will be managed by professional money managers Continue to: What are the Laws Governing Mutual Funds Related Articles Will Mutual Funds Definitely Work in Your Favor? Thinking of Mutual fund? Here are the tips!!! Is the time ripe to buy mutual funds? Best guide for selecting the right mutual funds Best Tips to do an Analysis of Mutual Funds International Mutual Funds: Don't miss the tremendous opportunity Investing in international mutual funds is gaining popularity for various reasons. Rising political stability merging or opening of borders and currencies are some of the reasons. Vibrant and upcoming economies and non US corporations becoming financially stronger by the day are some of the reasons. This article includes: How one can invest in international mutual funds?

Why the number of funds in the international investing is on the rise? What are the points to be analyzed before investing in international mutual funds? Look at the GDP (gross domestic product) growth of US which while being good enough for an advanced economy is a pale shadow of growth of GDPs of now developing countries. A spell binding performance of almost one and a half decades has faded into sidelines in comparison with the overseas stock markets. Two reasons stand out for this interesting phenomenon. Higher average age of US investors forces them into concentrating on mutual funds like retirement plans (401 (k)) rather than the aggressive stock or index funds. US have highest percentage (48%) of invested public (5 times more than Japan and about twice more than Europe). This vacuum coupled with higher growth rate of GDP is attracting the investment outside US. Investing In International Mutual Funds Investing in international mutual funds has two faces. First is buying funds from US based companies that buy and manage portfolio in internationally listed stocks/securities. These companies are governed by regulations of SEC (Securities and Exchange Commission) Second is buying mutual funds from international non US companies. A word of caution before investing even in best international mutual funds Unlike domestic mutual funds investment, international investments entail additional risk factors such as economic and political in addition to risk of FOREX value (simply put: foreign currency exchange value) fluctuations. Why Should You Invest In International Opportunities? The number of funds in international investing is on the rise. We can cite a few reasons for this. Removal of trade barriers and expanding of economies have sparked off growth in many non US companies. Some of the major industries of the world are dominated by non US companies. Over 72% of the world stocks are listed out side US. Greater and true diversification and opportunity to capitalize on best overseas companies. Investing in international mutual funds is gaining popularity for various reasons. Rising political stability merging or opening of borders and currencies are some of the reasons. Vibrant and upcoming economies and non US corporations becoming financially stronger by the day are some of the reasons. In addition you get true diversification, balance and opportunities. Continue to: Investing In Foreign Funds: What Should You Look for? Related Articles Invest Less, Earn Maximum Returns! Try Money Market Mutual Funds Check Out the Facts before Jumping into Mutual Funds Your Investing gets easier with mutual fund software

The Types before Investing in Mutual Funds There is no one method of classifying mutual funds risk free or advantageous. However we can do the same by way of classifying mutual funds as per their functioning and the type of funds they offer to investors. This article makes you aware on: What are the reasons that make the close ended mutual finds more attractive? What are the factors that determine the prices of exchange traded funds? Find out the features of open ended mutual funds There is no one method of classifying mutual funds risk free or advantageous. However we can do the same by way of classifying mutual funds as per their functioning and the type of funds they offer to investors. If we took the middle path and classify broadly we get the following list. Open End Mutual Funds All mutual funds by default and by definition are open end funds. Here an investor can buy the shares at any point of time and exit from it at any time of his choice. Both buying and selling will be at the current NAV subject to load factors where ever applicable. Though this is a very broad category, one can easily say this is the most popular of the lot looking at the ease with which one can liquidate his holding (exit from position by selling or redemption to the trust/fund). Affordability is another key factor that decides the popularity of open end funds. Those who can not afford high initial prices can buy with low dollar values and even on a monthly basis. Closed End Mutual Funds Selling off of a specified and limited number of shares by the mutual funds at an initial public offering is known as closed end mutual fund. However one important difference between open end fund and closed end mutual fund is that the price of the latter is decided by demand and supply of the stock in the market and not by NAVs unlike in the former case. The pooled funds are utilized as per the mandate of the fund and Securities and Exchange Commission's regulations. They are traded more like the general stocks. Some of the reasons to invest in this category Prices are determined by market demands and thus closed end funds trade at lower than the offer price more often than not which is a perfect time for buying (at discounted prices) Like in the open end funds there are wide options for you to choose from. Like stock funds, balanced funds that give full asset allocation benefit and thirdly the bond funds. Exchange Traded Funds The Exchange Traded Funds are a basket of stocks and trade like a normal security on exchanges tracking index much like index funds. The prices of the ETFs are determined by market forces and thus no NAVs can be fixed. The advantages of ETFs include buying and selling like you can do with any stock traded on the exchange not excluding short selling while you enjoy the

diversification of an index fund. There no fees/loads on these funds other than the commission you pay to the broker. There are many popular funds in this class and one of them is SPDR that tracks S&P 500 index. This article is about mutual funds in Canada and the United States. For other forms of mutual investment, see Collective investment scheme.

Mutual funds can give investors access to emerging markets

A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.[1] The mutual fund will have a fund manager that trades the pooled money on a regular basis. The net proceeds or losses are then typically distributed to the investors annually. Since 1940, there have been three basic types of investment companies in the United States: open-end funds, also known in the U.S. as mutual funds; unit investment trusts (UITs); and closed-end funds. Similar funds also operate in Canada. However, in the rest of the world, mutual fund is used as a generic term for various types of collective investment vehicles, such as unit trusts, open-ended investment companies (OEICs), unitized insurance funds, and undertakings for collective investments in transferable securities (UCITS).

History

Massachusetts Investors Trust (now MFS Investment Management) was founded on March 21, 1924, and, after one year, it had 200 shareholders and $392,000 in assets. The entire industry, which included a few closed-end funds represented less than $10 million in 1924. The stock market crash of 1929 hindered the growth of mutual funds. In response to the stock market crash, Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require that a fund be registered with the Securities and Exchange Commission (SEC) and provide prospective investors with a prospectus that contains required disclosures about the fund, the securities themselves, and fund manager. The SEC helped draft the Investment Company Act of 1940, which sets forth the guidelines with which all SEC-registered funds today must comply. With renewed confidence in the stock market, mutual funds began to blossom. By the end of the 1960s, there were approximately 270 funds with $48 billion in assets. The first retail index fund, First Index Investment Trust, was formed in 1976 and headed by John Bogle, who conceptualized many of the key tenets of the industry in his 1951 senior thesis at Princeton University[2]. It is now called the Vanguard 500 Index Fund and is one of the world's largest mutual funds, with more than $100 billion in assets.

A key factor in mutual-fund growth was the 1975 change in the Internal Revenue Code allowing individuals to open individual retirement accounts (IRAs). Even people already enrolled in corporate pension plans could contribute a limited amount (at the time, up to $2,000 a year). Mutual funds are now popular in employer-sponsored "defined-contribution" retirement plans such as (401(k)s) and 403(b)s as well as IRAs including Roth IRAs. As of October 2007, there are 8,015 mutual funds that belong to the Investment Company Institute (ICI), a national trade association of investment companies in the United States, with combined assets of $12.356 trillion.[3] In early 2008, the worldwide value of all mutual funds totaled more than $26 trillion.[4]
[edit] Usage

Since the Investment Company Act of 1940, a mutual fund is one of three basic types of investment companies available in the United States.[5] Mutual funds can invest in many kinds of securities. The most common are cash instruments, stock, and bonds, but there are hundreds of sub-categories. Stock funds, for instance, can invest primarily in the shares of a particular industry, such as technology or utilities. These are known as sector funds. Bond funds can vary according to risk (e.g., high-yield junk bonds or investment-grade corporate bonds), type of issuers (e.g., government agencies, corporations, or municipalities), or maturity of the bonds (short- or long-term). Both stock and bond funds can invest in primarily U.S. securities (domestic funds), both U.S. and foreign securities (global funds), or primarily foreign securities (international funds). Most mutual funds' investment portfolios are continually adjusted under the supervision of a professional manager, who forecasts cash flows into and out of the fund by investors, as well as the future performance of investments appropriate for the fund and chooses those which he or she believes will most closely match the fund's stated investment objective. A mutual fund is administered under an advisory contract with a management company, which may hire or fire fund managers. Mutual funds are subject to a special set of regulatory, accounting, and tax rules. In the U.S., unlike most other types of business entities, they are not taxed on their income as long as they distribute 90% of it to their shareholders and the funds meet certain diversification requirements in the Internal Revenue Code. Also, the type of income they earn is often unchanged as it passes through to the shareholders. Mutual fund distributions of tax-free municipal bond income are tax-free to the shareholder. Taxable distributions can be either ordinary income or capital gains, depending on how the fund earned those distributions. Net losses are not distributed or passed through to fund investors.
[edit] Net asset value

Main article: Net asset value

The net asset value, or NAV, is the current market value of a fund's holdings, less the fund's liabilities, usually expressed as a per-share amount. For most funds, the NAV is determined daily, after the close of trading on some specified financial exchange, but some funds update their NAV multiple times during the trading day. The public offering price, or POP, is the NAV plus a sales charge. Open-end funds sell shares at the POP and redeem shares at the NAV, and so process orders only after the NAV is determined. Closed-end funds (the shares of which are traded by investors) may trade at a higher or lower price than their NAV; this is known as a premium or discount, respectively. If a fund is divided into multiple classes of shares, each class will typically have its own NAV, reflecting differences in fees and expenses paid by the different classes. Some mutual funds own securities which are not regularly traded on any formal exchange. These may be shares in very small or bankrupt companies; they may be derivatives; or they

may be private investments in unregistered financial instruments (such as stock in a nonpublic company). In the absence of a public market for these securities, it is the responsibility of the fund manager to form an estimate of their value when computing the NAV. How much of a fund's assets may be invested in such securities is stated in the fund's prospectus.
[edit] Average Annual Return

US mutual funds use SEC form N-1A to report the average annual compounded rates of return for 1-year, 5-year and 10-year periods as the "average annual total return" for each fund. The following formula is used:[6]
P(1+T)n = ERV

Where:
P = a hypothetical initial payment of $1,000. T = average annual total return. n = number of years.

ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion).
[edit] Turnover

Turnover is a measure of the fund's securities transactions, usually calculated over a year's time, and usually expressed as a percentage of net asset value. This value is usually calculated as the value of all transactions (buying, selling) divided by 2 divided by the fund's total holdings; i.e., the fund counts one security sold and another one bought as one "turnover". Thus turnover measures the replacement of holdings. In Canada, under NI 81-106 (required disclosure for investment funds) turnover ratio is calculated based on the lesser of purchases or sales divided by the average size of the portfolio (including cash).
[edit] Expenses and TER's

Mutual funds bear expenses similar to other companies. The fee structure of a mutual fund can be divided into two or three main components: management fee, non-management expense, and 12b-1/non-12b-1 fees. All expenses are expressed as a percentage of the average daily net assets of the fund.
[edit] Management fees

The management fee for the fund is usually synonymous with the contractual investment advisory fee charged for the management of a fund's investments. However, as many fund companies include administrative fees in the advisory fee component, when attempting to compare the total management expenses of different funds, it is helpful to define management fee as equal to the contractual advisory fee + the contractual administrator fee. This "levels the playing field" when comparing management fee components across multiple funds. Contractual advisory fees may be structured as "flat-rate" fees, i.e., a single fee charged to the fund, regardless of the asset size of the fund. However, many funds have contractual fees which include breakpoints so that as the value of a fund's assets increases, the advisory fee paid decreases. Another way in which the advisory fees remain competitive is by structuring the fee so that it is based on the value of all of the assets of a group or a complex of funds rather than those of a single fund.

[edit] Non-management expenses

Apart from the management fee, there are certain non-management expenses which most funds must pay. Some of the more significant (in terms of amount) non-management expenses are: transfer agent expenses (this is usually the person you get on the other end of the phone line when you want to purchase/sell shares of a fund), custodian expense (the fund's assets are kept in custody by a bank which charges a custody fee), legal/audit expense, fund accounting expense, registration expense (the SEC charges a registration fee when funds file registration statements with it), board of directors/trustees expense (the members of the board who oversee the fund are usually paid a fee for their time spent at meetings), and printing and postage expense (incurred when printing and delivering shareholder reports).
[edit] 12b-1/Non-12b-1 service fees

12b-1 service fees/shareholder servicing fees are contractual fees which a fund may charge to cover the marketing expenses of the fund. Non-12b-1 service fees are marketing/shareholder servicing fees which do not fall under SEC rule 12b-1. While funds do not have to charge the full contractual 12b-1 fee, they often do. When investing in a front-end load or no-load fund, the 12b-1 fees for the fund are usually .250% (or 25 basis points). The 12b-1 fees for backend and level-load share classes are usually between 50 and 75 basis points but may be as much as 100 basis points. While funds are often marketed as "no-load" funds, this does not mean they do not charge a distribution expense through a different mechanism. It is expected that a fund listed on an online brokerage site will be paying for the "shelf-space" in a different manner even if not directly through a 12b-1 fee.
[edit] Investor fees and expenses

Fees and expenses borne by the investor vary based on the arrangement made with the investor's broker. Sales loads (or contingent deferred sales loads (CDSL)) are not included in the fund's total expense ratio (TER) because they do not pass through the statement of operations for the fund. Additionally, funds may charge early redemption fees to discourage investors from swapping money into and out of the fund quickly, which may force the fund to make bad trades to obtain the necessary liquidity. For example, Fidelity Diversified International Fund (FDIVX) charges a 1 percent fee on money removed from the fund in less than 30 days.
[edit] Brokerage commissions

An additional expense which does not pass through the statement of operations and cannot be controlled by the investor is brokerage commissions. Brokerage commissions are incorporated into the price of the fund and are reported usually 3 months after the fund's annual report in the statement of additional information. Brokerage commissions are directly related to portfolio turnover (portfolio turnover refers to the number of times the fund's assets are bought and sold over the course of a year). Usually, higher rate of portfolio turnover returns in higher brokerage commissions. The advisors of mutual fund companies are required to achieve "best execution" through brokerage arrangements so that the commissions charged to the fund will not be excessive.
[edit] Types of mutual funds

[edit] Open-end fund

The term mutual fund is the common name for what is classified as an open-end investment company by the SEC. Being open-ended means that, at the end of every day, the fund issues new shares to investors and buys back shares from investors wishing to leave the fund.

Mutual funds must be structured as corporations or trusts, such as business trusts, and any corporation or trust will be classified by the SEC as an investment company if it issues securities and primarily invests in non-government securities. An investment company will be classified by the SEC as an open-end investment company if they do not issue undivided interests in specified securities (the defining characteristic of unit investment trusts or UITs) and if they issue redeemable securities. Registered investment companies that are not UITs or open-end investment companies are closed-end funds. Neither UITs nor closed-end funds are mutual funds (as that term is used in the US).
[edit] Exchange-traded funds Main article: Exchange-traded fund

A relatively recent innovation, the exchange-traded fund or ETF, is often structured as an open-end investment company. ETFs combine characteristics of both mutual funds and closed-end funds. ETFs are traded throughout the day on a stock exchange, just like closedend funds, but at prices generally approximating the ETF's net asset value. Most ETFs are index funds and track stock market indexes. Shares are issued or redeemed by institutional investors in large blocks (typically of 50,000). Most investors purchase and sell shares through brokers in market transactions. Because the institutional investors normally purchase and redeem in in kind transactions, ETFs are more efficient than traditional mutual funds (which are continuously issuing and redeeming securities and, to effect such transactions, continually buying and selling securities and maintaining liquidity positions) and therefore tend to have lower expenses. Exchange-traded funds are also valuable for foreign investors who are often able to buy and sell securities traded on a stock market, but who, for regulatory reasons, are limited in their ability to participate in traditional U.S. mutual funds.
[edit] Equity funds

Equity funds, which consist mainly of stock investments, are the most common type of mutual fund. Equity funds hold 50 percent of all amounts invested in mutual funds in the United States. [7] Often equity funds focus investments on particular strategies and certain types of issuers.
[edit] Capitalization

Fund managers and other investment professionals have varying definitions of mid-cap, and large-cap ranges. The following ranges are used by Russell Indexes: [8]
Russell Microcap Index - micro-cap ($54.8 - 539.5 million) Russell 2000 Index - small-cap ($182.6 million - 1.8 billion) Russell Midcap Index - mid-cap ($1.8 - 13.7 billion) Russell 1000 Index - large-cap ($1.8 - 386.9 billion)

[edit] Growth vs. value

Another distinction is made between growth funds, which invest in stocks of companies that have the potential for large capital gains, and value funds, which concentrate on stocks that are undervalued. Value stocks have historically produced higher returns; however, financial theory states this is compensation for their greater risk. Growth funds tend not to pay regular dividends. Income funds tend to be more conservative investments, with a focus on stocks that pay dividends. A balanced fund may use a combination of strategies, typically including some level of investment in bonds, to stay more conservative when it comes to risk, yet aim for some growth.[citation needed]

[edit] Index funds versus active management Main articles: Index fund and active management

An index fund maintains investments in companies that are part of major stock (or bond) indexes, such as the S&P 500, while an actively managed fund attempts to outperform a relevant index through superior stock-picking techniques. The assets of an index fund are managed to closely approximate the performance of a particular published index. Since the composition of an index changes infrequently, an index fund manager makes fewer trades, on average, than does an active fund manager. For this reason, index funds generally have lower trading expenses than actively managed funds, and typically incur fewer short-term capital gains which must be passed on to shareholders. Additionally, index funds do not incur expenses to pay for selection of individual stocks (proprietary selection techniques, research, etc.) and deciding when to buy, hold or sell individual holdings. Instead, a fairly simple computer model can identify whatever changes are needed to bring the fund back into agreement with its target index. Certain empirical evidence seems to illustrate that mutual funds do not beat the market and actively managed mutual funds under-perform other broad-based portfolios with similar characteristics. One study found that nearly 1,500 U.S. mutual funds under-performed the market in approximately half of the years between 1962 and 1992.[9] Moreover, funds that performed well in the past are not able to beat the market again in the future (shown by Jensen, 1968; Grimblatt and Sheridan Titman, 1989).[10]
[edit] Bond funds

Bond funds account for 18% of mutual fund assets. [11] Types of bond funds include term funds, which have a fixed set of time (short-, medium-, or long-term) before they mature. Municipal bond funds generally have lower returns, but have tax advantages and lower risk. High-yield bond funds invest in corporate bonds, including high-yield or junk bonds. With the potential for high yield, these bonds also come with greater risk.
[edit] Money market funds

Money market funds hold 26% of mutual fund assets in the United States. [12] Money market funds entail the least risk, as well as lower rates of return. Unlike certificates of deposit (CDs), money market shares are liquid and redeemable at any time.
[edit] Funds of funds

Funds of funds (FoF) are mutual funds which invest in other underlying mutual funds (i.e., they are funds comprised of other funds). The funds at the underlying level are typically funds which an investor can invest in individually. A fund of funds will typically charge a management fee which is smaller than that of a normal fund because it is considered a fee charged for asset allocation services. The fees charged at the underlying fund level do not pass through the statement of operations, but are usually disclosed in the fund's annual report, prospectus, or statement of additional information. The fund should be evaluated on the combination of the fund-level expenses and underlying fund expenses, as these both reduce the return to the investor. Most FoFs invest in affiliated funds (i.e., mutual funds managed by the same advisor), although some invest in funds managed by other (unaffiliated) advisors. The cost associated with investing in an unaffiliated underlying fund is most often higher than investing in an affiliated underlying because of the investment management research involved in investing in fund advised by a different advisor. Recently, FoFs have been classified into those that are actively managed (in which the investment advisor reallocates frequently among the underlying funds in order to adjust to changing market conditions) and those that are

passively managed (the investment advisor allocates assets on the basis of on an allocation model which is rebalanced on a regular basis). The design of FoFs is structured in such a way as to provide a ready mix of mutual funds for investors who are unable to or unwilling to determine their own asset allocation model. Fund companies such as TIAA-CREF, American Century Investments, Vanguard, and Fidelity have also entered this market to provide investors with these options and take the "guess work" out of selecting funds. The allocation mixes usually vary by the time the investor would like to retire: 2020, 2030, 2050, etc. The more distant the target retirement date, the more aggressive the asset mix.
[edit] Hedge funds Main article: Hedge fund

Hedge funds in the United States are pooled investment funds with loose SEC regulation and should not be confused with mutual funds. Some hedge fund managers are required to register with SEC as investment advisers under the Investment Advisers Act. [13] The Act does not require an adviser to follow or avoid any particular investment strategies, nor does it require or prohibit specific investments. Hedge funds typically charge a management fee of 1% or more, plus a performance fee of 20% of the hedge fund's profit. There may be a "lock-up" period, during which an investor cannot cash in shares. A variation of the hedge strategy is the 130-30 fund for individual investors.
[edit] Mutual funds vs. other investments

Mutual funds offer several advantages over investing in individual stocks. For example, the transaction costs are divided among all the mutual fund shareholders, which allows for costeffective diversification. Investors may also benefit by having a third party (professional fund managers) apply expertise and dedicate time to manage and research investment options, although there is dispute over whether professional fund managers can, on average, outperform simple index funds that mimic public indexes. Yet, the Wall Street Journal reported that separately managed accounts (SMA or SMAs) performed better than mutual funds in 22 of 25 categories from 2006 to 2008. This included beating mutual funds performance in 2008, a tough year in which the global stock market lost US$21 trillion in value. [14] [15] In the story, Morningstar, Inc said SMAs outperformed mutual funds in 25 of 36 stock and bond market categories. Whether actively managed or passively indexed, mutual funds are not immune to risks. They share the same risks associated with the investments made. If the fund invests primarily in stocks, it is usually subject to the same ups and downs and risks as the stock market.
[edit] Share classes

Many mutual funds offer more than one class of shares. For example, you may have seen a fund that offers "Class A" and "Class B" shares. Each class will invest in the same pool (or investment portfolio) of securities and will have the same investment objectives and policies. But each class will have different shareholder services and/or distribution arrangements with different fees and expenses. These differences are supposed to reflect different costs involved in servicing investors in various classes; for example, one class may be sold through brokers with a front-end load, and another class may be sold direct to the public with no load but a "12b-1 fee" included in the class's expenses (sometimes referred to as "Class C" shares). Still a third class might have a minimum investment of $10,000,000 and be available only to financial institutions (a so-called "institutional" share class). In some cases, by aggregating regular investments made by many individuals, a retirement plan (such as a 401(k) plan) may qualify to purchase "institutional" shares (and gain the benefit of their typically lower

expense ratios) even though no members of the plan would qualify individually. [16]As a result, each class will likely have different performance results. [17] A multi-class structure offers investors the ability to select a fee and expense structure that is most appropriate for their investment goals (including the length of time that they expect to remain invested in the fund). [17]
[edit] Load and expenses Main article: Mutual fund fees and expenses

A front-end load or sales charge is a commission paid to a broker by a mutual fund when shares are purchased, taken as a percentage of funds invested. The value of the investment is reduced by the amount of the load. Some funds have a deferred sales charge or back-end load. In this type of fund an investor pays no sales charge when purchasing shares, but will pay a commission out of the proceeds when shares are redeemed depending on how long they are held. Another derivative structure is a level-load fund, in which no sales charge is paid when buying the fund, but a back-end load may be charged if the shares purchased are sold within a year. Load funds are sold through financial intermediaries such as brokers, financial planners, and other types of registered representatives who charge a commission for their services. Shares of front-end load funds are frequently eligible for breakpoints (i.e., a reduction in the commission paid) based on a number of variables. These include other accounts in the same fund family held by the investor or various family members, or committing to buy more of the fund within a set period of time in return for a lower commission "today". It is possible to buy many mutual funds without paying a sales charge. These are called noload funds. In addition to being available from the fund company itself, no-load funds may be sold by some discount brokers for a flat transaction fee or even no fee at all. (This does not necessarily mean that the broker is not compensated for the transaction; in such cases, the fund may pay brokers' commissions out of "distribution and marketing" expenses rather than a specific sales charge. The purchaser is therefore paying the fee indirectly through the fund's expenses deducted from profits.) No-load funds include both index funds and actively managed funds. The largest mutual fund families selling no-load index funds are Vanguard and Fidelity, though there are a number of smaller mutual fund families with no-load funds as well. Expense ratios in some no-load index funds are less than 0.2% per year versus the typical actively managed fund's expense ratio of about 1.5% per year. Load funds usually have even higher expense ratios when the load is considered. The expense ratio is the anticipated annual cost to the investor of holding shares of the fund. For example, on a $100,000 investment, an expense ratio of 0.2% means $200 of annual expense, while a 1.5% expense ratio would result in $1,500 of annual expense. These expenses are before any sales commissions paid to purchase the mutual fund. Many fee-only financial advisors strongly suggest no-load funds such as index funds. If the advisor is not of the fee-only type but is instead compensated by commissions, the advisor may have a conflict of interest in selling high-commission load funds. A closed-end fund, or closed-ended fund is a collective investment scheme with a limited number of shares. New shares are rarely issued after the fund is launched; shares are not normally redeemable for cash or securities until the fund liquidates. Typically an investor can acquire shares in a closed-end fund by buying shares on a secondary market from a broker, market maker, or other investor as opposed to an Open-end fund where all transactions eventually involve the fund company creating new shares on the fly (in exchange for either cash or securities) or redeeming shares (for cash or securities).

The price of a share in a closed-end fund is determined partially by the value of the investments in the fund, and partially by the premium (or discount) placed on it by the market. The total value of all the securities in the fund divided by the number of shares in the fund is called the net asset value (NAV) per share. The market price of a fund share is often higher or lower than the per share NAV: when the fund's share price is higher than per share NAV it is said to be selling at a premium; when it is lower, at a discount to the per share NAV. In the U.S. legally they are called closed-end companies and form one of three SEC recognized types of investment companies along with mutual funds and unit investment trusts. Other examples of closed-ended funds are Investment trusts in the UK and Listed investment companies in Australia. An open-end(ed) fund is a collective investment scheme which can issue and redeem shares at any time. An investor will generally purchase shares in the fund directly from the fund itself rather than from the existing shareholders. It contrasts with a closed-end fund, which typically issues all the shares it will issue at the outset, with such shares usually being tradeable between investors thereafter. Open-ended funds are available in most developed countries, though terminology and operating rules vary. U.S. mutual funds, UK unit trusts and OEICs, European SICAVs, hedge funds and exchange-traded funds are all example of open-ended funds. The price at which shares in an open-ended fund are issued or can be redeemed will vary in proportion to the net asset value of the fund, and therefore directly reflects the fund's performance.
Contents

[hide] 1 Fees 2 Active management 3 Net asset value 4 Hedge funds 5 Examples 6 See also

[edit] Fees

There may be a percentage charge levied on purchase or sale of shares--in this case, the fund is a "load fund"; if there are no such charges levied, the fund is "no-load". However, brokerages may charge commissions for the purchase of even no-load funds, and there might also be other fees associated with no-load funds, such as yearly maintenance fees in IRA accounts and redemption fees designed to discourage shareholders from jumping in and out of funds in an attempt at market timing.
[edit] Active management

Most open-end funds are actively managed, meaning that a portfolio manager picks the securities to buy, although index funds are now growing in popularity. Index funds are openend funds that attempt to replicate an index, such as the S&P 500, and therefore do not allow the manager to actively choose securities to buy. These fees are commonly referred to as 12b1 fees in U.S.
[edit] Net asset value

The price per share, or NAV (net asset value), is calculated by dividing the fund's assets minus liabilities by the number of shares outstanding. This is usually calculated at the end of every trading day.
[edit] Hedge funds

Hedge funds are typically open-ended and actively managed. However, their NAV is typically calculated monthly.
[edit] Examples

U.S. mutual funds:

T. Rowe Price Fidelity Investments' Magellan The Vanguard Group's S&P 500 PIMCO Total Return

[edit] See also

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Invest Wisely: An Introduction to Mutual Funds

Over the past decade, American investors increasingly have turned to mutual funds to save for retirement and other financial goals. Mutual funds can offer the advantages of diversification and professional management. But, as with other investment choices, investing in mutual funds involves risk. And fees and taxes will diminish a fund's returns. It pays to understand both the upsides and the downsides of mutual fund investing and how to choose products that match your goals and tolerance for risk. This brochure explains the basics of mutual fund investing how mutual funds work, what factors to consider before investing, and how to avoid common pitfalls.

Key Points To Remember

How Mutual Funds Work Factors to Consider Avoiding Common Pitfalls If You Have Problems Glossary of Key Mutual Fund Terms

Key Points to Remember

1.
Mutual funds are not guaranteed or insured by the FDIC or any other government agency even if you buy through a bank and the fund carries the bank's name. You can lose money investing in mutual funds.

2.

Past performance is not a reliable indicator of future performance. So don't be dazzled by last year's high returns. But past performance can help you assess a fund's volatility over time.

3.

All mutual funds have costs that lower your investment returns. Shop around, and use a mutual fund cost calculator at www.sec.gov/investor/tools.shtml to compare many of the costs of owning different funds before you buy.

Top

How Mutual Funds Work

What They Are

A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments. The combined holdings the mutual fund owns are known as its portfolio. Each share represents an investor's proportionate ownership of the fund's holdings and the income those holdings generate. Other Types of Investment Companies Legally known as an "open-end company," a mutual fund is one of three basic types of investment companies. While this brochure discusses only mutual funds, you should be aware that other pooled investment vehicles exist and may offer features that you desire. The two other basic types of investment companies are:
Closed-end funds which, unlike mutual funds, sell a fixed number of shares at one time (in an initial public

offering) that later trade on a secondary market; and Unit Investment Trusts (UITs) which make a onetime public offering of only a specific, fixed number of redeemable securities called "units" and which will terminate and dissolve on a date specified at the creation of the UIT.

"Exchange-traded funds" (ETFs) are a type of investment company that aims to achieve the same return as a particular market index. They can be either open-end companies or UITs. But ETFs are not considered to be, and are not permitted to call themselves, mutual funds. Some of the traditional, distinguishing characteristics of mutual funds include the following:
Investors purchase mutual fund shares from the fund itself (or through a broker for the fund) instead of from other investors on a secondary market, such as the New York Stock Exchange or Nasdaq Stock Market. The price that investors pay for mutual fund shares is the fund's per share net asset value (NAV) plus any shareholder fees that the fund imposes at the time of purchase (such as sales loads). Mutual fund shares are "redeemable," meaning investors can sell their shares back to the fund (or to a broker acting for the fund). Mutual funds generally create and sell new shares to accommodate new investors. In other words, they sell their shares on a continuous basis, although some funds stop selling when, for example, they become too large. The investment portfolios of mutual funds typically are managed by separate entities known as "investment advisers" that are registered with the SEC.

A Word About Hedge Funds and "Funds of Hedge Funds" "Hedge fund" is a general, non-legal term used to describe private, unregistered investment pools that traditionally have been limited to sophisticated, wealthy investors. Hedge funds are not mutual funds and, as such, are not subject to the numerous regulations that apply to mutual funds for the protection of investors including regulations requiring a certain degree of liquidity, regulations requiring that mutual fund shares be redeemable at any time, regulations protecting against conflicts of interest, regulations to assure fairness in the pricing of fund

shares, disclosure regulations, regulations limiting the use of leverage, and more. "Funds of hedge funds," a relatively new type of investment product, are investment companies that invest in hedge funds. Some, but not all, register with the SEC and file semi-annual reports. They often have lower minimum investment thresholds than traditional, unregistered hedge funds and can sell their shares to a larger number of investors. Like hedge funds, funds of hedge funds are not mutual funds. Unlike open-end mutual funds, funds of hedge funds offer very limited rights of redemption. And, unlike ETFs, their shares are not typically listed on an exchange. You'll find more information about hedge funds on our website. To learn more about funds of hedge funds, please read FINRA's Investor Alert entitled Funds of Hedge Funds: Higher Costs and Risks for Higher Potential Returns.

Advantages and Disadvantages

Every investment has advantages and disadvantages. But it's important to remember that features that matter to one investor may not be important to you. Whether any particular feature is an advantage for you will depend on your unique circumstances. For some investors, mutual funds provide an attractive investment choice because they generally offer the following features:
1.
Professional Management Professional money managers research, select, and monitor the performance of the securities the fund purchases.

2.

Diversification Diversification is an investing strategy that can be neatly summed up as "Don't put all your eggs in one basket." Spreading your investments across a wide range of companies and industry sectors can help lower your risk if a company or sector fails. Some investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds.

3.

Affordability Some mutual funds accommodate investors who don't have a lot of money to invest by setting relatively low dollar amounts for initial purchases, subsequent monthly purchases, or both.

4.

Liquidity Mutual fund investors can readily redeem their shares at the current NAV plus any fees and charges assessed on redemption at any time.

But mutual funds also have features that some investors might view as disadvantages, such as:
1.
Costs Despite Negative Returns Investors must pay sales charges, annual fees, and other expenses (which we'll discuss below) regardless of how the fund performs. And, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive even if the fund went on to perform poorly after

they bought shares.

2.

Lack of Control Investors typically cannot ascertain the exact make-up of a fund's portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.

3.

Price Uncertainty With an individual stock, you can obtain realtime (or close to real-time) pricing information with relative ease by checking financial websites or by calling your broker. You can also monitor how a stock's price changes from hour to hour or even second to second. By contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend on the fund's NAV, which the fund might not calculate until many hours after you've placed your order. In general, mutual funds must calculate their NAV at least once every business day, typically after the major U.S. exchanges close.
Different Types of Funds

When it comes to investing in mutual funds, investors have literally thousands of choices. Before you invest in any given fund, decide whether the investment strategy and risks of the fund are a good fit for you. The first step to successful investing is figuring out your financial goals and risk tolerance either on your own or with the help of a financial professional. Once you know what you're saving for, when you'll need the money, and how much risk you can tolerate, you can more easily narrow your choices. Most mutual funds fall into one of three main categories money market funds, bond funds (also called "fixed income" funds), and stock funds (also called "equity" funds). Each type has different features and different risks and rewards. Generally, the higher the potential return, the higher the risk of loss.
Money Market Funds
Money market funds have relatively low risks, compared to other mutual funds (and most other investments). By law, they can invest in only certain high-quality, short-term investments issued by the U.S. government, U.S. corporations, and state and local governments. Money market funds try to keep their net asset value (NAV) which represents the value of one share in a fund at a stable $1.00 per share. But the NAV may fall below $1.00 if the fund's investments perform poorly. Investor losses have been rare, but they are possible. Money market funds pay dividends that generally reflect shortterm interest rates, and historically the returns for money market funds have been lower than for either bond or stock funds. That's why "inflation risk" the risk that inflation will outpace and erode investment returns over time can be a potential concern for investors in money market funds.

Bond Funds
Bond funds generally have higher risks than money market funds, largely because they typically pursue strategies aimed at producing higher yields. Unlike money market funds, the SEC's rules do not restrict bond funds to high-quality or short-term investments. Because there are many different types of bonds,

bond funds can vary dramatically in their risks and rewards. Some of the risks associated with bond funds include: Credit Risk the possibility that companies or other issuers whose bonds are owned by the fund may fail to pay their debts (including the debt owed to holders of their bonds). Credit risk is less of a factor for bond funds that invest in insured bonds or U.S. Treasury bonds. By contrast, those that invest in the bonds of companies with poor credit ratings generally will be subject to higher risk. Interest Rate Risk the risk that the market value of the bonds will go down when interest rates go up. Because of this, you can lose money in any bond fund, including those that invest only in insured bonds or Treasury bonds. Funds that invest in longer-term bonds tend to have higher interest rate risk. Prepayment Risk the chance that a bond will be paid off early. For example, if interest rates fall, a bond issuer may decide to pay off (or "retire") its debt and issue new bonds that pay a lower rate. When this happens, the fund may not be able to reinvest the proceeds in an investment with as high a return or yield.

Stock Funds
Although a stock fund's value can rise and fall quickly (and dramatically) over the short term, historically stocks have performed better over the long term than other types of investments including corporate bonds, government bonds, and treasury securities. Overall "market risk" poses the greatest potential danger for investors in stocks funds. Stock prices can fluctuate for a broad range of reasons such as the overall strength of the economy or demand for particular products or services. Not all stock funds are the same. For example:

1.

Growth funds focus on stocks that may not pay a regular dividend but have the potential for large capital gains.

2. 3.

Income funds invest in stocks that pay regular dividends.

Index funds aim to achieve the same return as a particular market index, such as the S&P 500 Composite Stock Price Index, by investing in all or perhaps a representative sample of the companies included in an index.

4.

Sector funds may specialize in a particular industry segment, such as technology or consumer products stocks.
How to Buy and Sell Shares

You can purchase shares in some mutual funds by contacting the fund directly. Other mutual fund shares are sold mainly through brokers, banks, financial planners, or insurance agents. All mutual funds will redeem (buy back) your shares on any business day and must send you the payment within seven days. The easiest way to determine the value of your shares is to call the fund's tollfree number or visit its website. The financial pages of major newspapers

sometimes print the NAVs for various mutual funds. When you buy shares, you pay the current NAV per share plus any fee the fund assesses at the time of purchase, such as a purchase sales load or other type of purchase fee. When you sell your shares, the fund will pay you the NAV minus any fee the fund assesses at the time of redemption, such as a deferred (or back-end) sales load or redemption fee. A fund's NAV goes up or down daily as its holdings change in value. Exchanging Shares A "family of funds" is a group of mutual funds that share administrative and distribution systems. Each fund in a family may have different investment objectives and follow different strategies. Some funds offer exchange privileges within a family of funds, allowing shareholders to transfer their holdings from one fund to another as their investment goals or tolerance for risk change. While some funds impose fees for exchanges, most funds typically do not. To learn more about a fund's exchange policies, call the fund's toll-free number, visit its website, or read the "shareholder information" section of the prospectus. Bear in mind that exchanges have tax consequences. Even if the fund doesn't charge you for the transfer, you'll be liable for any capital gain on the sale of your old shares or, depending on the circumstances, eligible to take a capital loss. We'll discuss taxes in further detail below.
How Funds Can Earn Money for You

You can earn money from your investment in three ways:

1. Dividend Payments A fund may earn income in the form of
dividends and interest on the securities in its portfolio. The fund then pays its shareholders nearly all of the income (minus disclosed expenses) it has earned in the form of dividends.

2. Capital Gains Distributions The price of the securities a fund

owns may increase. When a fund sells a security that has increased in price, the fund has a capital gain. At the end of the year, most funds distribute these capital gains (minus any capital losses) to investors.

3. Increased NAV If the market value of a fund's portfolio

increases after deduction of expenses and liabilities, then the value (NAV) of the fund and its shares increases. The higher NAV reflects the higher value of your investment.

With respect to dividend payments and capital gains distributions, funds usually will give you a choice: the fund can send you a check or other form of payment, or you can have your dividends or distributions reinvested in the fund to buy more shares (often without paying an additional sales load). Top

Factors to Consider
Thinking about your long-term investment strategies and tolerance for risk can help you decide what type of fund is best suited for you. But you should also consider the effect that fees and taxes will have on your returns over time.
Degrees of Risk

All funds carry some level of risk. You may lose some or all of the money you invest your principal because the securities held by a fund go up and down in value. Dividend or interest payments may also fluctuate as market conditions change. Before you invest, be sure to read a fund's prospectus and shareholder reports to learn about its investment strategy and the potential risks. Funds with higher rates of return may take risks that are beyond your comfort level and are inconsistent with your financial goals. A Word About Derivatives Derivatives are financial instruments whose performance is derived, at least in part, from the performance of an underlying asset, security, or index. Even small market movements can dramatically affect their value, sometimes in unpredictable ways. There are many types of derivatives with many different uses. A fund's prospectus will disclose whether and how it may use derivatives. You may also want to call a fund and ask how it uses these instruments.
Fees and Expenses

As with any business, running a mutual fund involves costs including shareholder transaction costs, investment advisory fees, and marketing and distribution expenses. Funds pass along these costs to investors by imposing fees and expenses. It is important that you understand these charges because they lower your returns. Some funds impose "shareholder fees" directly on investors whenever they buy or sell shares. In addition, every fund has regular, recurring, fund-wide "operating expenses." Funds typically pay their operating expenses out of fund assets which means that investors indirectly pay these costs. SEC rules require funds to disclose both shareholder fees and operating expenses in a "fee table" near the front of a fund's prospectus. The lists below will help you decode the fee table and understand the various fees a fund may impose:
Shareholder Fees 1.
Sales Charge (Load) on Purchases the amount you pay when you buy shares in a mutual fund. Also known as a "front-end load," this fee typically goes to the brokers that sell the fund's shares. Front-end loads reduce the amount of your investment. For example, let's say you have $1,000 and want to invest it in a mutual fund with a 5% front-end load. The $50 sales load you must pay comes off the top, and the remaining $950 will be invested in the fund. According to FINRA rules, a front-end

load cannot be higher than 8.5% of your investment.

2.

Purchase Fee another type of fee that some funds charge their shareholders when they buy shares. Unlike a front-end sales load, a purchase fee is paid to the fund (not to a broker) and is typically imposed to defray some of the fund's costs associated with the purchase.

3.

Deferred Sales Charge (Load) a fee you pay when you sell your shares. Also known as a "back-end load," this fee typically goes to the brokers that sell the fund's shares. The most common type of back-end sales load is the "contingent deferred sales load" (also known as a "CDSC" or "CDSL"). The amount of this type of load will depend on how long the investor holds his or her shares and typically decreases to zero if the investor holds his or her shares long enough.

4.

Redemption Fee another type of fee that some funds charge their shareholders when they sell or redeem shares. Unlike a deferred sales load, a redemption fee is paid to the fund (not to a broker) and is typically used to defray fund costs associated with a shareholder's redemption.

5.

Exchange Fee a fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group or "family of funds."

6.

Account fee a fee that some funds separately impose on investors in connection with the maintenance of their accounts. For example, some funds impose an account maintenance fee on accounts whose value is less than a certain dollar amount.

Annual Fund Operating Expenses 1.

Management Fees fees that are paid out of fund assets to the fund's investment adviser for investment portfolio management, any other management fees payable to the fund's investment adviser or its affiliates, and administrative fees payable to the investment adviser that are not included in the "Other Expenses" category (discussed below).

2.

Distribution [and/or Service] Fees ("12b-1" Fees) fees paid by the fund out of fund assets to cover the costs of marketing and selling fund shares and sometimes to cover the costs of providing shareholder services. "Distribution fees" include fees to compensate brokers and others who sell fund shares and to pay for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature. "Shareholder Service Fees" are fees paid to persons to respond to investor inquiries and provide investors with information about their investments.

3.

Other Expenses expenses not included under "Management Fees" or "Distribution or Service (12b-1) Fees," such as any shareholder service expenses that are not already included in the 12b-1 fees, custodial expenses, legal and accounting expenses, transfer agent expenses, and other administrative expenses.

4.

Total Annual Fund Operating Expenses ("Expense Ratio") the line of the fee table that represents the total of all of a fund's annual fund operating expenses, expressed as a percentage of the fund's average net assets. Looking at the expense ratio can help you make comparisons among funds.

A Word About "No-Load" Funds Some funds call themselves "no-load." As the name implies, this means that the fund does not charge any type of sales load. But, as discussed above, not every type of shareholder fee is a "sales load." A no-load fund may charge fees that are not sales loads, such as purchase fees, redemption fees, exchange fees, and account fees. No-load funds will also have operating expenses. Be sure to review carefully the fee tables of any funds you're considering, including no-load funds. Even small differences in fees can translate into large differences in returns over time. For example, if you invested $10,000 in a fund that produced a 10% annual return before expenses and had annual operating expenses of 1.5%, then after 20 years you would have roughly $49,725. But if the fund had expenses of only 0.5%, then you would end up with $60,858 an 18% difference. A mutual fund cost calculator can help you understand the impact that many types of fees and expenses can have over time. It takes only minutes to compare the costs of different mutual funds. A Word About Breakpoints Some mutual funds that charge front-end sales loads will charge lower sales loads for larger investments. The investment levels required to obtain a reduced sales load are commonly referred to as "breakpoints." The SEC does not require a fund to offer breakpoints in the fund's sales load. But, if breakpoints exist, the fund must disclose them. In addition, a FINRA member brokerage firm should not sell you shares of a fund in an amount that is "just below" the fund's sales load breakpoint simply to earn a higher commission. Each fund company establishes its own formula for how they will calculate whether an investor is entitled to receive a breakpoint. For that reason, it is important to seek out breakpoint information from your financial advisor or the fund itself. You'll need to ask how a particular fund establishes eligibility for breakpoint discounts, as well as what the fund's breakpoint amounts are. FINRA's Mutual Fund Breakpoint Search Tool can help you determine whether you're entitled to breakpoint discounts.
Classes of Funds

Many mutual funds offer more than one class of shares. For example, you may have seen a fund that offers "Class A" and "Class B" shares. Each class will

invest in the same "pool" (or investment portfolio) of securities and will have the same investment objectives and policies. But each class will have different shareholder services and/or distribution arrangements with different fees and expenses. As a result, each class will likely have different performance results. A multi-class structure offers investors the ability to select a fee and expense structure that is most appropriate for their investment goals (including the time that they expect to remain invested in the fund). Here are some key characteristics of the most common mutual fund share classes offered to individual investors:
1.
Class A Shares Class A shares typically impose a front-end sales load. They also tend to have a lower 12b-1 fee and lower annual expenses than other mutual fund share classes. Be aware that some mutual funds reduce the front-end load as the size of your investment increases. If you're considering Class A shares, be sure to inquire about breakpoints.

2.

Class B Shares Class B shares typically do not have a front-end sales load. Instead, they may impose a contingent deferred sales load and a 12b-1 fee (along with other annual expenses). Class B shares also might convert automatically to a class with a lower 12b-1 fee if the investor holds the shares long enough.

3.

Class C Shares Class C shares might have a 12b-1 fee, other annual expenses, and either a front- or back-end sales load. But the frontor back-end load for Class C shares tends to be lower than for Class A or Class B shares, respectively. Unlike Class B shares, Class C shares generally do not convert to another class. Class C shares tend to have higher annual expenses than either Class A or Class B shares.
Tax Consequences

When you buy and hold an individual stock or bond, you must pay income tax each year on the dividends or interest you receive. But you won't have to pay any capital gains tax until you actually sell and unless you make a profit. Mutual funds are different. When you buy and hold mutual fund shares, you will owe income tax on any ordinary dividends in the year you receive or reinvest them. And, in addition to owing taxes on any personal capital gains when you sell your shares, you may also have to pay taxes each year on the fund's capital gains. That's because the law requires mutual funds to distribute capital gains to shareholders if they sell securities for a profit that can't be offset by a loss. Tax Exempt Funds If you invest in a tax-exempt fund such as a municipal bond fund some or all of your dividends will be exempt from federal (and sometimes state and local) income tax. You will, however, owe taxes on any capital gains. Bear in mind that if you receive a capital gains distribution, you will likely owe taxes even if the fund has had a negative return from the point during the year when you purchased your shares. For this reason, you should call the fund to find out when it makes distributions so you won't pay more than your fair share of taxes. Some funds post that information on their websites.

SEC rules require mutual funds to disclose in their prospectuses after-tax returns. In calculating after-tax returns, mutual funds must use standardized formulas similar to the ones used to calculate before-tax average annual total returns. You'll find a fund's after-tax returns in the "Risk/Return Summary" section of the prospectus. When comparing funds, be sure to take taxes into account. Top

Avoiding Common Pitfalls

If you decide to invest in mutual funds, be sure to obtain as much information about the fund before you invest. And don't make assumptions about the soundness of the fund based solely on its past performance or its name.
Sources of Information

Prospectus

When you purchase shares of a mutual fund, the fund must provide you with a prospectus. But you can and should request and read a fund's prospectus before you invest. The prospectus is the fund's selling document and contains valuable information, such as the fund's investment objectives or goals, principal strategies for achieving those goals, principal risks of investing in the fund, fees and expenses, and past performance. The prospectus also identifies the fund's managers and advisers and describes how to purchase and redeem fund shares. While they may seem daunting at first, mutual fund prospectuses contain a treasure trove of valuable information. The SEC requires funds to include specific categories of information in their prospectuses and to present key data (such as fees and past performance) in a standard format so that investors can more easily compare different funds. Here's some of what you'll find in mutual fund prospectuses:
1.
Date of Issue The date of the prospectus should appear on the front cover. Mutual funds must update their prospectuses at least once a year, so always check to make sure you're looking at the most recent version.

2.

Risk/Return Bar Chart and Table Near the front of the prospectus, right after the fund's narrative description of its investment objectives or goals, strategies, and risks, you'll find a bar chart showing the fund's annual total returns for each of the last 10 years (or for the life of the fund if it is less than 10 years old). All funds that have had annual returns for at least one calendar year must include this chart. Except in limited circumstances, funds also must include a table that sets forth returns both before and after taxes for the past 1-, 5-, and 10year periods. The table will also include the returns of an appropriate broad-based index for comparison purposes. Here's what the table will look like:

1year Return before taxes Return after taxes on distributions Return after taxes on distributions and sale of fund shares ___% ___%

5-year (or 10-year (or life of fund) life of fund) ___% ___% ___% ___%

___%

___%

___%

Index (reflects no deductions for ___% [fees, expenses, or taxes])

___%

___%

3.
Note: Be sure to read any footnotes or accompanying explanations to make sure that you fully understand the data the fund provides in the bar chart and table. Also, bear in mind that the bar chart and table for a multipleclass fund (that offers more than one class of fund shares in the prospectus) will typically show performance data and returns for only one class.

4.

Fee Table Following the performance bar chart and annual returns table, you'll find a table that describes the fund's fees and expenses. These include the shareholder fees and annual fund operating expenses described in greater detail above. The fee table includes an example that will help you compare costs among different funds by showing you the costs associated with investing a hypothetical $10,000 over a 1-, 3-, 5-, and 10-year period.

5.

Financial Highlights This section, which generally appears towards the back of the prospectus, contains audited data concerning the fund's financial performance for each of the past 5 years. Here you'll find net asset values (for both the beginning and end of each period), total returns, and various ratios, including the ratio of expenses to average net assets, the ratio of net income to average net assets, and the portfolio turnover rate.

Profile
Some mutual funds also furnish investors with a "profile," which summarizes key information contained in the fund's prospectus, such as the fund's investment objectives, principal investment strategies, principal risks, performance, fees and expenses, aftertax returns, identity of the fund's investment adviser, investment requirements, and other information.

Statement of Additional Information ("SAI")

Also known as "Part B" of the registration statement, the SAI explains a fund's operations in greater detail than the prospectus including the fund's financial statements and details about the history of the fund, fund policies on borrowing and concentration, the identity of officers, directors, and persons who control the fund, investment advisory and other services, brokerage commissions, tax matters, and performance such as yield and average annual total return information. If you ask, the fund must send you an SAI. The back cover of the fund's prospectus should contain information on how to obtain the SAI.

Shareholder Reports
A mutual fund also must provide shareholders with annual and semi-annual reports within 60 days after the end of the fund's fiscal year and 60 days after the fund's fiscal mid-year. These reports contain a variety of updated financial information, a list of the fund's portfolio securities, and other information. The information in the shareholder reports will be current as of the date of the particular report (that is, the last day of the fund's fiscal year for the annual report, and the last day of the fund's fiscal mid-year for the semi-annual report).

Investors can obtain all of these documents by:

Calling or writing to the fund (all mutual funds have toll-free telephone numbers); Visiting the fund's website; Contacting a broker that sells the fund's shares; Searching the SEC's EDGAR database and downloading the documents for free; or Accessing "How to Request Public Documents".
Past Performance

A fund's past performance is not as important as you might think. Advertisements, rankings, and ratings often emphasize how well a fund has performed in the past. But studies show that the future is often different. This year's "number one" fund can easily become next year's below average fund. Be sure to find out how long the fund has been in existence. Newly created or small funds sometimes have excellent short-term performance records. Because these funds may invest in only a small number of stocks, a few successful stocks can have a large impact on their performance. But as these funds grow larger and increase the number of stocks they own, each stock has less impact on performance. This may make it more difficult to sustain initial results. While past performance does not necessarily predict future returns, it can tell you how volatile (or stable) a fund has been over a period of time. Generally, the more volatile a fund, the higher the investment risk. If you'll need your money to meet a financial goal in the near-term, you probably can't afford the

risk of investing in a fund with a volatile history because you will not have enough time to ride out any declines in the stock market.
Looking Beyond a Fund's Name

Don't assume that a fund called the "XYZ Stock Fund" invests only in stocks or that the "Martian High-Yield Fund" invests only in the securities of companies headquartered on the planet Mars. The SEC requires that any mutual fund with a name suggesting that it focuses on a particular type of investment must invest at least 80% of its assets in the type of investment suggested by its name. But funds can still invest up to one-fifth of their holdings in other types of securities including securities that you might consider too risky or perhaps not aggressive enough.
Bank Products versus Mutual Funds

Many banks now sell mutual funds, some of which carry the bank's name. But mutual funds sold in banks, including money market funds, are not bank deposits. As a result, they are not federally insured by the Federal Deposit Insurance Corporation (FDIC). Money Market Matters Don't confuse a "money market fund" with a "money market deposit account." The names are similar, but they are completely different:
1.
A money market fund is a type of mutual fund. It is not guaranteed or FDIC insured. When you buy shares in a money market fund, you should receive a prospectus.

2.

A money market deposit account is a bank deposit. It is guaranteed and FDIC insured. When you deposit money in a money market deposit account, you should receive a Truth in Savings form.

Top

If You Have Problems

If you encounter a problem with your mutual fund, you can send us your complaint using our online complaint form. You can also reach us by regular mail at:
Securities and Exchange Commission Office of Investor Education and Advocacy 100 F Street, N.E. Washington, D.C. 20549-0213

For more information about investing wisely and avoiding fraud, please check out the Investor Information section of our website. Top

Glossary of Key Mutual Fund Terms

12b-1 Fees fees paid by the fund out of fund assets to cover the costs of

marketing and selling fund shares and sometimes to cover the costs of providing shareholder services. "Distribution fees" include fees to compensate brokers and others who sell fund shares and to pay for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature. "Shareholder Service Fees" are fees paid to persons to respond to investor inquiries and provide investors with information about their investments. Account Fee a fee that some funds separately impose on investors for the maintenance of their accounts. For example, accounts below a specified dollar amount may have to pay an account fee. Back-end Load a sales charge (also known as a "deferred sales charge") investors pay when they redeem (or sell) mutual fund shares, generally used by the fund to compensate brokers. Classes different types of shares issued by a single fund, often referred to as Class A shares, Class B shares, and so on. Each class invests in the same "pool" (or investment portfolio) of securities and has the same investment objectives and policies. But each class has different shareholder services and/or distribution arrangements with different fees and expenses and therefore different performance results. Closed-End Fund a type of investment company that does not continuously offer its shares for sale but instead sells a fixed number of shares at one time (in the initial public offering) which then typically trade on a secondary market, such as the New York Stock Exchange or the Nasdaq Stock Market. Legally known as a "closed-end company." Contingent Deferred Sales Load a type of back-end load, the amount of which depends on the length of time the investor held his or her shares. For example, a contingent deferred sales load might be (X)% if an investor holds his or her shares for one year, (X-1)% after two years, and so on until the load reaches zero and goes away completely. Conversion a feature some funds offer that allows investors to automatically change from one class to another (typically with lower annual expenses) after a set period of time. The fund's prospectus or profile will state whether a class ever converts to another class. Deferred Sales Charge see "back-end load" (above). Distribution Fees fees paid out of fund assets to cover expenses for marketing and selling fund shares, including advertising costs, compensation for brokers and others who sell fund shares, and payments for printing and mailing prospectuses to new investors and sales literature prospective investors. Sometimes referred to as "12b-1 fees." Exchange Fee a fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group. Exchange-Traded Funds a type of an investment company (either an openend company or UIT) whose objective is to achieve the same return as a particular market index. ETFs differ from traditional open-end companies and UITs, because, pursuant to SEC exemptive orders, shares issued by ETFs trade on a secondary market and are only redeemable from the fund itself in very large blocks (blocks of 50,000 shares for example).

Expense Ratio the fund's total annual operating expenses (including management fees, distribution (12b-1) fees, and other expenses) expressed as a percentage of average net assets. Front-end Load an upfront sales charge investors pay when they purchase fund shares, generally used by the fund to compensate brokers. A front-end load reduces the amount available to purchase fund shares. Index Fund describes a type of mutual fund or Unit Investment Trust (UIT) whose investment objective typically is to achieve the same return as a particular market index, such as the S&P 500 Composite Stock Price Index, the Russell 2000 Index, or the Wilshire 5000 Total Market Index. Investment Adviser generally, a person or entity who receives compensation for giving individually tailored advice to a specific person on investing in stocks, bonds, or mutual funds. Some investment advisers also manage portfolios of securities, including mutual funds. Investment Company a company (corporation, business trust, partnership, or limited liability company) that issues securities and is primarily engaged in the business of investing in securities. The three basic types of investment companies are mutual funds, closed-end funds, and unit investment trusts. Load see "Sales Charge." Management Fee fee paid out of fund assets to the fund's investment adviser or its affiliates for managing the fund's portfolio, any other management fee payable to the fund's investment adviser or its affiliates, and any administrative fee payable to the investment adviser that are not included in the "Other Expenses" category. A fund's management fee appears as a category under "Annual Fund Operating Expenses" in the Fee Table. Market Index a measurement of the performance of a specific "basket" of stocks considered to represent a particular market or sector of the U.S. stock market or the economy. For example, the Dow Jones Industrial Average (DJIA) is an index of 30 "blue chip" U.S. stocks of industrial companies (excluding transportation and utility companies). Mutual Fund the common name for an open-end investment company. Like other types of investment companies, mutual funds pool money from many investors and invest the money in stocks, bonds, short-term moneymarket instruments, or other securities. Mutual funds issue redeemable shares that investors purchase directly from the fund (or through a broker for the fund) instead of purchasing from investors on a secondary market. NAV (Net Asset Value) the value of the fund's assets minus its liabilities. SEC rules require funds to calculate the NAV at least once daily. To calculate the NAV per share, simply subtract the fund's liabilities from its assets and then divide the result by the number of shares outstanding. No-load Fund a fund that does not charge any type of sales load. But not every type of shareholder fee is a "sales load," and a no-load fund may charge fees that are not sales loads. No-load funds also charge operating expenses. Open-End Company the legal name for a mutual fund. An open-end company is a type of investment company Operating Expenses the costs a fund incurs in connection with running the fund, including management fees, distribution (12b-1) fees, and other expenses.

Portfolio an individual's or entity's combined holdings of stocks, bonds, or other securities and assets. Profile summarizes key information about a mutual fund's costs, investment objectives, risks, and performance. Although every mutual fund has a prospectus, not every mutual fund has a profile. Prospectus describes the mutual fund to prospective investors. Every mutual fund has a prospectus. The prospectus contains information about the mutual fund's costs, investment objectives, risks, and performance. You can get a prospectus from the mutual fund company (through its website or by phone or mail). Your financial professional or broker can also provide you with a copy. Purchase Fee a shareholder fee that some funds charge when investors purchase mutual fund shares. Not the same as (and may be in addition to) a front-end load. Redemption Fee a shareholder fee that some funds charge when investors redeem (or sell) mutual fund shares. Redemption fees (which must be paid to the fund) are not the same as (and may be in addition to) a back-end load (which is typically paid to a broker). The SEC generally limits redemption fees to 2%. Sales Charge (or "Load") the amount that investors pay when they purchase (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a commission. The SEC's rules do not limit the size of sales load a fund may charge, but FINRA rules state that mutual fund sales loads cannot exceed 8.5% and must be even lower depending on other fees and charges assessed. Shareholder Service Fees fees paid to persons to respond to investor inquiries and provide investors with information about their investments. See also "12b-1 fees." Statement of Additional Information (SAI) conveys information about an open- or closed-end fund that is not necessarily needed by investors to make an informed investment decision, but that some investors find useful. Although funds are not required to provide investors with the SAI, they must give investors the SAI upon request and without charge. Also known as "Part B" of the fund's registration statement. Total Annual Fund Operating Expense the total of a fund's annual fund operating expenses, expressed as a percentage of the fund's average net assets. You'll find the total in the fund's fee table in the prospectus. Unit Investment Trust (UIT) a type of investment company that typically makes a one-time "public offering" of only a specific, fixed number of units. A UIT will terminate and dissolve on a date established when the UIT is created (although some may terminate more than fifty years after they are created). UITs do not actively trade their investment portfolios. http://www.sec.gov/investor/pubs/inwsmf.htm

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Modified: 07/02/2008

Types of Mutual Funds explained

This article describes in short text the characteristics, such as investment objective and potential for volatility, of various categories of funds. The descriptions are organized by the securities purchased by each fund: stocks, bonds, money market securities, or a combination of these. Because mutual funds have specific investment objectives such as growth of capital, safety of principal, current income or tax-exempt income, you can select one fund or any number of different funds to help you meet your specific goals. In general, mutual funds fall into these categories: Stock or Equity Funds invest in shares of common stocks. Bond or Fixed-Income Funds invest in government or corporate securities to generate income. Asset Allocation Funds invest in a combination of stocks, bonds and money market securities. Money Market Funds for high stability of principal, liquidity and income.

Those were the main categories, check the subcategories and try to remember them it will be very useful for you. STOCK OR EQUITY FUNDS
Growth Funds What they invest Generally invest in stocks for growth rather than current

in: Suitable for:

income. Growth-oriented investors who are able to assume risk or who are dependent on maximizing current income from their investments.

Value Funds What they invest Generally invest in fundamentally strong businesses whose in: stocks appear to be selling at attractive prices. Suitable for: Investors who seek the possibility of long-term capital appreciation with varying levels of dividend income.

Blend Funds What they invest Both growth stocks and value stocks. in: Suitable for: Investors who want the potential to build wealth over time while seeking investments that perform well when either growth or value stocks are in favor.

International Funds What they invest Securities of international markets. in: Suitable for: While international funds offer opportunities for growth and diversification, these funds do carry some additional risks over domestic funds and should be carefully evaluated and selected according to the investors objectives, timeframe and risk. They are not suitable for investors whose goal is to conserve their principal or maximize current income.

Specialty/Sector Funds What they invest Securities of a specific industry or sector of the economy in: such as health care, technology, leisure, utilities or precious metals. Suitable for: Investors seeking to invest in a particular industry. They are not suitable for investors whose goal is to conserve their principal or maximize current income.

BOND OR FIXED-INCOME FUNDS

Taxable Bond Funds

What they invest U.S. government and government agency bonds, mortgagein: backed and asset-backed bonds or bonds issued by corporations. Suitable for: Investors who want to maximize current income and who can assume a degree of capital risk in order to do so. When interest rates rise, the market price of bonds decline and so will the value of the funds investments.

Tax-Free Bond Funds What they invest Bonds issued by state and local governments and other in: entities to raise monies for public works and improvements. Suitable for: Investors seeking income dividends that are free from federal taxes and, in some cases, state and local taxes. When interest rates rise, the market price of bonds declines and so will the value of the funds investments.

ASSET ALLOCATION FUNDS

What they invest A variable mix of stocks, bonds and money market in: securities. Some use a fund-of-funds structure and invest in other mutual funds rather than individual securities. Suitable for: Investors seeking the advantage of investing in a single portfolio with broad diversification.

MONEY MARKET FUNDS

What they invest Taxable money market funds invest in high-quality, shortin: term U.S. government securities and corporate money market securities. Tax-free money market funds invest in high-quality, short-term securities that are exempt from federal taxes and, in some cases, state and local taxes. Suitable for:

Money market funds are suitable for conservative investors who want high stability of principal and moderate current income with immediate liquidit

Definition: A mutual fund is made up of money that is pooled together by a large number of investors who give their money to a fund manager to invest in a large portfolio of stocks and/or bonds. TeenAnalyst Advice: Mutual funds are great because they offer regular investors a chance to diversify their portfolios, which is something they may not be able to do on their own. Consider this, if you want to build a diversified portfolio of 30 stocks, you would probably need $30,000 to get started ($1000 per stock...which is usually the norm). Or you could open up an account with a mutual fund for just $1000. There's about 10,000 mutual funds out there, and they come in all different shapes and sizes. Be sure to check out our mutual fund section! Related Sections on Our Website

Investing - Learn more about investing basics and strategies. Mutual Funds - Learn about investing in mutual funds.
The Definition A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund.

You can make money from a mutual fund in three ways: 1) Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all of the income it receives over the year to fund owners in the form of a distribution. 2) If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. 3) If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares. Advantages of Mutual Funds: Professional Management - The primary advantage of funds (at least theoretically) is the professional management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolios. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments. Diversification - By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds you own, the less any one of them can hurt you (think about Enron). Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be possible for an investor to build this kind of a portfolio with a small amount of money. Economies of Scale - Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than what an individual would pay for securities transactions. Liquidity - Just like an individual stock, a mutual fund allows you to request that your shares be converted into cash at any time. Simplicity - Buying a mutual fund is easy! Pretty well any bank has its own line of mutual funds, and the minimum investment is small. Most companies also have automatic purchase plans whereby as little as $100 can be invested on a monthly basis.

Disadvantages of Mutual Funds: Professional Management - Did you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager

still takes his/her cut. We'll talk about this in detail in a later section. Costs - Mutual funds don't exist solely to make your life easier - all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject. Dilution - It's possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. Taxes - When making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gains tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

Next: Mutual Funds: Different Types Of Funds

Table of Contents 1) Mutual Funds: Introduction 2) Mutual Funds: What Are They? 3) Mutual Funds: Different Types Of Funds 4) Mutual Funds: The Costs 5) Mutual Funds: Picking A Mutual Fund 6) Mutual Funds: How To Read A Mutual Fund Table 7) Mutual Funds: Don't Be Fooled By Mutual Fund Ads 8) Mutual Funds: Conclusion

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The definition of a mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities. In a mutual fund, the fund manager trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding. Legally known as an "open-end company" under the Investment Company Act of 1940 (the primary regulatory statute governing investment companies), a mutual fund is one of three basic types of investment companies available in the United States. Outside of the United States (with the exception of Canada, which follows the U.S. model), mutual fund is a generic term for various types of collective investment vehicle. In the United Kingdom and western Europe (including

offshore jurisdictions), other forms of collective investment vehicle are prevalent, including unit trusts, open-ended investment companies (OEICs), SICAVs and unitized insurance funds. In Australia the term "mutual fund" is generally not used; the name "managed fund" is used instead. However, "managed fund" is somewhat generic as the definition of a managed fund in Australia is any vehicle in which investors' money is managed by a third party (NB: usually an investment professional or organization). Most managed funds are open-ended (i.e., there is no established maximum number of shares that can be issued); however, this need not be the case. Additionally the Australian government introduced a compulsory superannuation/pension scheme which, although strictly speaking a managed fund, is rarely identified by this term and is instead called a "superannuation fund" because of its special tax concessions and restrictions on when money invested in it can be accessed.

What Are Mutual Funds?

By Kimberly Amadeo, About.com

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Mutual Funds in India

Mutual Fund is an instrument of investing money. Nowadays, bank rates have fallen down and are generally below the inflation rate. Therefore, keeping large amounts of money in bank is not a wise option, as in real terms the value of money decreases over a period of time. One of the options is to invest the money in stock market. But a common investor is not informed and competent enough to understand the intricacies of stock market. This is where mutual funds come to the rescue. A mutual fund is a group of investors operating through a fund manager to purchase a diverse portfolio of stocks or bonds. Mutual funds are highly cost efficient and very easy to invest in. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. Also, one doesn't have to figure out which stocks or bonds to buy. But the biggest advantage of mutual funds is diversification. Diversification means spreading out money across many different types of investments. When one investment is down another might be up. Diversification of investment holdings reduces the risk tremendously. On the basis of their structure and objective, mutual funds can be classified into following major types: Closed-end funds A closed-end mutual fund has a set number of shares issued to the public through an initial public offering. Open-end funds Open end funds are operated by a mutual fund house which raises money from shareholders and invests in a group of assets

Large cap funds Large cap funds are those mutual funds, which seek capital appreciation by investing primarily in stocks of large blue chip companies Mid-cap funds Mid cap funds are those mutual funds, which invest in small / medium sized companies. As there is no standard definition classifying companies Equity funds Equity mutual funds are also known as stock mutual funds. Equity mutual funds invest pooled amounts of money in the stocks of public companies. Balanced funds Balanced fund is also known as hybrid fund. It is a type of mutual fund that buys a combination of common stock, preferred stock, bonds, and short-term bonds Growth funds Growth funds are those mutual funds that aim to achieve capital appreciation by investing in growth stocks. No load funds Mutual funds can be classified into two types - Load mutual funds and No-Load mutual funds. Exchange traded funds Exchange Traded Funds (ETFs) represent a basket of securities that is traded on an exchange, similar to a stock. Hence, unlike conventional mutual funds Value funds Value funds are those mutual funds that tend to focus on safety rather than growth, and often choose investments providing dividends as well as capital appreciation. Money market funds A money market fund is a mutual fund that invests solely in money market instruments. Money market instruments are forms of debt that mature in less than one year and are very liquid. International mutual funds International mutual funds are those funds that invest in non-domestic securities markets throughout the world. Regional mutual funds Regional mutual fund is a mutual fund that confines itself to investments in securities from a specified geographical area, usually, the fund's local region. Sector funds Sector mutual funds are those mutual funds that restrict their investments to a particular segment or sector of the economy. Index funds An index fund is a a mutual fund or exchange-traded fund) that aims to replicate the movements of an index of a specific financial market. Fund of funds

A fund of funds (FoF) is an investment fund that holds a portfolio of other investment funds rather than investing directly in shares, bonds or other securities. Demat refers to a dematerialised account.
Though the company is under obligation to offer the securities in both physical and demat mode, you have the choice to receive the securities in either mode.

If you wish to have securities in demat mode, you need to indicate the name of the depository and also of the depository participant with whom you have depository account in your application. It is, however desirable that you hold securities in demat form as physical securities carry the risk of being fake, forged or stolen. Just as you have to open an account with a bank if you want to save your money, make cheque payments etc, Nowadays, you need to open a demat account if you want to buy or sell stocks.

So it is just like a bank account where actual money is replaced by shares. You have to approach the DPs (remember, they are like bank branches), to open your demat account. Let's say your portfolio of shares looks like this: 150 of Infosys, 50 of Wipro, 200 of HLL and 100 of ACC. All these will show in your demat account. So you don't have to possess any physical certificates showing that you own these shares. They are all held electronically in your account. As you buy and sell the shares, they are adjusted in your account. Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions. Is a demat account a must? Nowadays, practically all trades have to be settled in dematerialised form. Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of upto 500 shares to be settled in physical form, nobody wants physical shares any more.
So a demat account is a must for trading and investing. Most banks are also DP participants, as are many brokers. You can choose your very own DP. To get a list, visit the NSDL and CDSL websites and see who the registered DPs are. A broker is separate from a DP. A broker is a member of the stock exchange, who buys and sells shares on his behalf and on behalf of his clients. A DP will just give you an account to hold those shares. You do not have to take the same DP that your broker takes. You can choose your own.

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Share Market Basics - Explained Demat refers to a dematerialised account.

Though the company is under obligation to offer the securities in both physical and demat mode, you have the choice to receive the securities in either mode.

If you wish to have securities in demat mode, you need to indicate the name of the depository and also of the depository participant with whom you have depository account in your application. It is, however desirable that you hold securities in demat form as physical securities carry the risk of being fake, forged or stolen. Just as you have to open an account with a bank if you want to save your money, make cheque payments etc, Nowadays, you need to open a demat account if you want to buy or sell stocks.

So it is just like a bank account where actual money is replaced by shares. You have to approach the DPs (remember, they are like bank branches), to open your demat account. Let's say your portfolio of shares looks like this: 150 of Infosys, 50 of Wipro, 200 of HLL and 100 of ACC. All these will show in your demat account. So you don't have to possess any physical certificates showing that you own these shares. They are all held electronically in your account. As you buy and sell the shares, they are adjusted in your account. Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions. Is a demat account a must? Nowadays, practically all trades have to be settled in dematerialised form. Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of upto 500 shares to be settled in physical form, nobody wants physical shares any more.
So a demat account is a must for trading and investing. Most banks are also DP participants, as are many brokers. You can choose your very own DP. To get a list, visit the NSDL and CDSL websites and see who the registered DPs are. A broker is separate from a DP. A broker is a member of the stock exchange, who buys and sells shares on his behalf and on behalf of his clients. A DP will just give you an account to hold those shares. You do not have to take the same DP that your broker takes. You can choose your own.

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