and a no-load fund? A load fund is a mutual fund which must be purchased through a broker or other investment advisor. The seller is paid a commission by the mutual fund company for selling its funds.
With a front-end load, the commission is assessed
when purchases are made into the fund.
With a back-end load, the commission is
assessed when redemptions are made. Some load funds appear to be no-load funds but actually carry "hidden loads" no front- or back- end loads, but they have higher annual expenses. Through time, funds with "hidden loads" may prove to be more expensive for the investor to hold than either front- or back-end load funds. A no-load fund does not pay commissions to brokers or investment advisors and may be purchased directly from the mutual fund company.
The no-load fund offers an advantage to investors
because, by avoiding the commission (which can be as high as 8.5%), they can buy more shares in the fund with a given amount of capital, and therefore, other things being equal, earn a higher rate of return. 2) What is the difference between a growth fund and a balanced fund? The objective of a growth fund is long-term growth and capital gains are the primary goals of such funds, and as a result they invest principally in common stocks that have above- average growth potential. They are usually viewed as long-term investment vehicles that are most suitable for the more aggressive investor who wants to build capital and has little interest in current income. Balanced Funds are so named because they tend to hold a balanced portfolio of both stocks and bonds, and they do so for the purpose of generating a well-balanced return of current income and long-term capital gains.
For the most part, they confine their investing to
high-grade securities, and are therefore usually considered a relatively safe form of investing. 3) If growth, income and capital preservation are the primary objectives of mutual funds, why do we bother to categorise them by type? Even though growth, income, and capital preservation are primary mutual fund objectives, each fund concentrates on one or more particular goal(s). Thus (i) for people who rely heavily on current income, an investment in an income fund would be the right choice. (ii)Investors who do not require the current income and are content with waiting for capital appreciation can benefit from growth funds. These classifications of mutual funds are helpful in determining whether or not the goal of the mutual fund is compatible with one's own investment objective. The SEC requires that the specific objective of a fund be stated in its prospectus, along with how it intends to meet its objective. 4) What are the most common reasons for buying mutual funds? The most common motives for purchasing mutual fund shares are diversification, professional management, financial return, and convenience. Diversification The primary motive for investing in mutual fund shares is the ability to diversify and diminish risk by indirectly investing in a number of different types of securities and/or companies. Professional mangement The fact that a professional manager is paid to make investment decisions is expected to improve the owners' returns. Financial Return
Mutual funds also offer the small investor a way to invest
with little start-up capital. In fact, some funds require only a very low or even no minimum initial investment if an automatic monthly draft is made from the investors bank account.
To keep expenses low, the investor can pick a quality no-
load fund and bypass the broker entirely. These funds are easy to get into, easy to get out of, and the investor doesnt have to worry about whether to take physical possession of the securities or not. Convenience Mutual funds also provide a way to invest in areas that an investor may not fully understand, and in reality, many people do not have the time or inclination to track their own investments. Convenience, provided by the fact that investment company shares can be purchased through a variety of sources, also adds to their appeal. Others
In addition, mutual funds provide their investors with a variety
of services, like automatic reinvestment plans, phone or online switching, and conversion privileges. 5) Briefly describe the basic structure and investment considerations associated with real estate investment trust (REIT) The basic structure of a REIT is like a mutual fund in that it sells shares of stock to the investing public and uses the proceeds, along with borrowed funds, to invest in a portfolio of real estate investments. The investment consideration associated with a REIT is that income earned by the REIT is not taxed while dividends on common stocks normally are taxed. 6) A year ago, the Everlast Growth Fund was being quoted at an NAV of RM21.50 and an offer price of RM23.35 , today it is being quoted at RM23.04 (NAV) and RM25.04 (offer). Calculate the rate of return of this fund if the dividends and capital gains distribution over the year totalled RM1.05 a share. Approximate Yield:
Dividends and + Ending Price Beginning Price
Capital gains distributions 1- year time period Ending Price + beginning Price 2 = 11.62%