An Introduction to Mutual Funds

PowerPoint Notes

What are Mutual Funds?

Mutual funds are a type of investment that takes money from many investors and uses it to make investments based on a stated investment objective. Each shareholder in the mutual fund participates proportionally (based upon the number of shares owned) in the gain or loss of the fund.

Why do People Invest in Mutual Funds?

Mutual funds offer investors an affordable way to diversify their investment portfolios. Mutual funds allow investors the opportunity to have a financial stake in many different types of investments. hese investments include! stocks" bonds" money markets" real estate" commodities" etc# $ndividually" an investor may be able to own stock in a few companies" a few bonds" and have money in a money market account. Participation in a mutual fund" however" allows the investor to have much greater e%posure to each of these asset classes.

Continued
Most mutual funds are professionally managed by an investment e%pert known as a portfolio manager. his individual makes all of the buying and selling decisions for the fund. here are thousands of different mutual funds in the &nited 'tates. his provides investors with many options to help them achieve their investment objectives.

Basic Mutual Fund Categories

). *. +. ,. .. Mutual (unds can be divided into four basic categories based upon the funds investment objective. hese categories are! Money Market Mutual (unds 'tock Mutual (unds $nde% (unds -ond Mutual (unds -alanced Mutual (unds

Money Market Mutual Funds

his is the most conservative type of mutual fund. he goal is to maintain the /) value of its shares while providing income. $nvests in high01uality" short0term securities such as certificates of deposit" &.'. reasury -ills" and &.'. reasury Notes. MMM(2s are an appropriate place for savings. hese funds have typically offered higher interest rates than bank savings accounts. Money market mutual funds are not insured by the (3$4.

Stock Mutual Funds

ype of fund that invests in stocks. hese funds are also known as e1uity funds. here are many different types of stock mutual funds. 'ome of the most common include! 5arge0cap funds" mid0cap funds" small0cap funds" income funds" growth funds" value funds" blend funds" international funds" and sector funds.

Index Funds
hese are mutual funds whose holdings aim to track the performance of a specific stock market inde%. he most common inde% fund tracks the '6P .77. hese inde% funds invest in the e%act stocks (and in the same percentages) as those found in the '6P .77. $nde% funds also track bonds" real estate" and other types of assets. hese funds are lower cost than other types of funds.

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$t is time for us to begin watching a Nightly -usiness 8eport 9ideo on Mutual (unds: ;ith a 1uestion sheet of course: 3on2t worry we will continue the PowerPoint during our ne%t class:

Bond Mutual Funds

ype of mutual fund that invests in bonds. here are different types of bond mutual funds. ypically" bond mutual funds have the objective of providing stable income with minimal risk.

#ypes o$ Bond Mutual Funds

'hort" $ntermediate" and 5ong0 erm &.'. -ond (unds 'hort" $ntermediate" and 5ong0 erm 4orporate -ond (unds Municipal -ond (unds <igh0=ield (junk) -ond (unds ;e will talk more about bonds and bond funds later in this unit of study.

Balanced Mutual Funds

hese are also known as hybrid funds. hese mutual funds invest in stocks" bonds" and money markets. hese are very diversified mutual funds. he stock portion of the fund provides the potential for capital appreciation" while the bond and money market portion provide income.

#he Mutual Fund Prospectus

his is a legal document which describes the investment objective of the fund" the manner in which the fund is administered and operated" the fees and other pertinent information. he prospectus should be read thoroughly before making an investment decision.

%oad v& Funds

o %oad Mutual

> mutual fund that charges a commission to cover its administrative costs is called a load fund. > front0end load charges the load when the shares are purchased" while a back0 end load charges the load when the shares are sold. > no0load mutual fund doesn2t charge a purchase or sales commission.

Ma'or Mutual Fund Co(panies

9anguard" (idelity" and . 8owe Price are three of the world2s major mutual fund companies. http!??vanguard.com http!??fidelity.com http!??troweprice.com