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Mutual Funds
Mutual fund – a business that accepts deposits from
many people to invest in various ways
-each deposit is used to pay for a portion of the
stocks or bonds the fund purchases
-professionals employed by the fund make
transaction decisions
Mutual Funds (cont.)
-generally require a minimum of $1000 investment
-your return is a share of the dividends and/or capital
gains/losses
-Purchase through brokerage such as Merrill Lynch, TD
Waterhouse
Costs of Mutual Funds
-All charge annual maintenance fees
(0.2 – 3% of the value of your investment)
-Some charge sales fees
(5-6% to pay for marketing of fund)
– paid when buying shares OR when selling shares
Why invest in mutual funds?
1.
Limited amount of investment can still be
diversified.
2. Many are managed to delay owners’ taxes until owner
redeems their investment.
3. You do not have to follow the market to be informed
about transaction decisions.
How to choose mutual funds
1.
Choose the investment objective (low, med, high
risk) that fits your tolerance.
2. Consider whether you want returns now (dividends)
or later (capital gains).
Risk/Return Pyramid for Mutual
Funds
Great Risk and
Potential Return
Growth
Funds
Growth and Blue
Chip Funds
Blue Chip
Funds
Tax- Free
Funds
Lower Risk and
Potential
Return
How to research mutual funds
1.
Financial publications – annual eval./compare
-Fortune, Forbes
2. Internet
3. Request info from company
-prospectus – publication describing how fund is
operated, objectives, and fees