Chapter 15: Investing Through Mutual Funds Garman/Forgue Personal Finance Ninth Edition PPT slide...

Chapter 15:Investing Through Mutual Funds

Garman/Forgue

Personal FinanceNinth Edition

PPT slide program prepared by Amy Forgue and Ray Forgue.

Copyright ©Houghton Mifflin Company. All rights reserved. 15 - 2

Learning Objectives

1. Describe the features, services, and advantages of investing in mutual funds.

2. Differentiate mutual funds by investment objectives, types, and characteristics.


Learning Objectives

3. Summarize the fees and charges involved in buying and selling mutual funds.

4. Establish strategies to evaluate and select mutual funds that meet your investment goals.


Why Invest in Mutual Funds?

• Net Asset Value (or NAV): Per-share value of a mutual fund.

• Dividend income and capital gains– Ordinary income dividend distributions– Capital gains distributions


Advantages of Investing Through Mutual Funds

• Diversification– Random (or nonsystematic) risk

• Affordability

• Professional management– Fund investment advisers


Advantages of Investing Through Mutual Funds

• Liquidity

• Low transaction costs

• Uncomplicated investment choices


Mutual Fund Disadvantages

• Performance is often lower than the market.

• Diversification may not really exist.

• Costs can be high.


Unique Mutual Fund Services

• Convenience

• Ease of buying and selling shares

• Check writing and electronic transfers

• Distribution of or automatic reinvestment of income and capital



• Telephone and internet exchange privileges– Exchange (or switching, conversion, or

transfer) privilege

• Beneficiary designation

• Automatic investment



• Effortless establishment of retirement plans

• Multiple income withdrawal options (or systematic withdrawal plans)


Types of Investment Companies

• Closed-End Mutual Fund

• Real Estate Investment Trust (or REIT)

• Unit Investment Trust (or UIT)

• Exchange-Traded Fund (or ETF)


Fund Objectives, Types, and Characteristics

• Managed Funds

• Income Objective



• Money Market Funds– Tax-exempt money market funds– Government securities money market

funds

• Bond funds– Bond (or fixed-income) funds



• Growth objective– Aggressive growth (or maximum capital

gains) funds– Growth funds– Growth and income funds– Value funds– Sector funds



• Index Funds: These funds are unmanaged.

• Growth and income objective– Growth and income funds– Equity-income funds– Socially conscious funds– Asset allocation funds– Life-cycle funds


Fees and Charges of Mutual Fund Investing

• Shareholder Fees

• Annual Fund Operating Expenses


Load and No-Load Funds

• Load funds always charge transaction fees.– Front-end load– Stated commission– Percentage of the amount invested

• Some no-load mutual funds assess 12b-1 fees.– 12b-1 (or distribution) fee– Trailing commissions


Load and No-Load Funds

• Some no-load funds assess deferred load and redemption fees.– Deferred (or back-end) load– Redemption charge (or exit fee)


Fees and Charges of Mutual Fund Investing

• Disclosure of fees in standardized expense table

• What’s best: load or no load? Low fee or high fee?


Selecting Funds in Which to Invest

• Review your investment philosophy and investment goals.

• Eliminate funds inappropriate for your investment goals.



• Screen and compare funds that meet your investment criteria.– Fund screener (or fund screening tool)– Profile prospectus (or fund profile)

• Monitor your mutual fund portfolio.



• Use portfolio monitoring on the ‘Net.

• Check fund quotations in newspapers.– Mutual fund bid price– Mutual fund ask price


The Top 3 Financial Missteps In Mutual Fund Investing

People slip up in mutual fund investing when they do the following:

1. Buy funds with high fees and expenses.

2. Withdraw dividends rather than reinvesting.

3. Chase performance by investing in “hot” funds.


Good Money Habits in Mutual Funds

• Match your investment philosophy and financial goals to a mutual fund’s objectives.

• Invest only in no-load mutual funds that have low expenses and have no or a low 12b-1 fee.



• Get the right mix of asset classes in your long-term fund investments and learn to love consistency.

• Sign up for automatic reinvestment of your mutual fund dividends.



• Invest regularly through your employer’s retirement plan.

• Rebalance your portfolio at least once a year and dump the slackers.

Date post:	20-Dec-2015
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Chapter 15: Investing Through Mutual Funds Garman/Forgue Personal Finance Ninth Edition PPT slide...

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