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Chapter 4 Appendix Mutual Fund Evaluation Term Project

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Title: PowerPoint Presentation Author: Oliver Schnusenberg Last modified by: Oliver Schnusenberg Created Date: 6/3/2002 7:49:06 PM Document presentation format – PowerPoint PPT presentation

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Title: Chapter 4 Appendix Mutual Fund Evaluation Term Project


1
Chapter 4 AppendixMutual Fund Evaluation Term
Project
2
  • A small man anyone with a portfolio of, say,
    under 100,000 is unlikely to do as well
    investing his own money as he can do in a no-load
    fund
  • - Paul Samuelson

3
Outline
  • Introduction
  • Classification of mutual funds

4
Introduction
  • A mutual fund is an existing portfolio of assets
    into which someone may invest directly
  • Facilitates diversification

5
Introduction (contd)
  • Mutual funds are extremely popular investment
    vehicles for both the small and the large
    investor
  • Many institutions place a substantial part of
    their money with mutual funds
  • By the end of 2000, about 8,300 mutual funds with
    assets totaling 6.9 trillion

6
Classification of Mutual Funds
  • Open-end versus closed-end
  • Net asset value versus market value
  • Load versus no-load
  • Management fees
  • Buying mutual fund shares
  • Mutual fund objectives

7
Open-End Versus Closed-End
  • There are two types of investment companies
  • Open-end funds
  • May grow in size as new investors open accounts
  • May grow in size as existing investors add to
    their accounts
  • Have no set number of shares outstanding
  • Buy back their shares from investors (redemption)

8
Open-End Versus Closed-End (contd)
  • There are two types of investment companies
    (contd)
  • Closed-end funds
  • Have a fixed number of shares that trade like
    shares of common stock
  • Are unmanaged portfolios of stock with each share
    representing partial ownership of the portfolio
  • May trade on an exchange
  • Can be sold to other investors

9
Net Asset Value Versus Market Value
  • You buy and sell an open-end fund based on its
    net asset value
  • Open-end fund equals the funds assets minus its
    liabilities divided by the number of shares
    currently existing in the fund
  • Closed-end fund trades at market-determined
    portfolio prices that may be more or less than
    the net asset value

10
Load Versus No-Load
  • Load funds
  • Have a sales charge associated with the purchase
    of new shares
  • A commission split between
  • A mutual fund salesperson
  • An investment firm
  • A national distributor
  • Typically ranges between 1.0 and 8.5

11
Load Versus No-Load (contd)
  • No-load funds
  • Have no sales charge
  • Shares are bought and sold at net asset value

12
Examples of Exchange-Traded
Funds
13
Management Fees
  • Management fees include
  • Postage costs
  • Clerical time
  • Commissions on the underlying assets
  • Redemption fee
  • A fee to pay redemption expenses, ranging between
    1 and 2

14
Management Fees (contd)
  • Management fees include (contd)
  • Management fee
  • Paid to fund manager
  • Taken directly from the funds assets
  • Averages about 0.5 of funds total assets

15
Buying Mutual Fund Shares
  • Fund prospectus outlines
  • The funds purpose
  • The management team
  • The mailing address and phone number
  • The funds intended investment activity
  • Funds also provide descriptive brochures and a
    letter to inquiries

16
Buying Mutual Fund Shares (contd)
  • New account application asks for
  • Name, address, tax ID
  • Investors choice of shareholder options
  • Dividend reinvestment
  • Automatic monthly investment
  • Systematic withdrawal
  • IRA designation
  • Telephonic fund switching option

17
Mutual Fund Objectives
  • The fund objective is the type of investment
    anticipated
  • Capital appreciation and growth funds seek
    appreciation in the value of shares
  • Income funds seek current income from
    fixed-income securities and from dividends
  • Growth and income funds seek a combination of
    income and capital appreciation

18
Mutual Fund Objectives (contd)
  • The fund objective is the type of investment
    anticipated (contd)
  • Balanced invest in growth and income securities
  • Bond funds invest in debt only
  • Money market funds seek stability of principal
    through investment in short-term debt instruments

19
Mutual Fund Objectives (contd)
  • The fund objective is the type of investment
    anticipated (contd)
  • Tax-free funds invest in municipal securities
    that are free from federal and sometimes state
    taxes
  • Special-purpose funds may focus on a particular
    industry or region
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