LAP: QS-035LAP: QS-035

ObjectivesObjectives

Discuss reasons individuals choose

to invest in mutual funds.

Discuss reasons individuals choose

to invest in mutual funds.

Explain how to buy/sell mutual

funds.

Explain how to buy/sell mutual

funds.

Mutual FundsMutual Funds

ObjectiveObjective

Discuss reasons individuals choose to invest in mutual funds.

Discuss reasons individuals choose to invest in mutual funds.

Alternative to investing in individual securities Alternative to investing in individual securities

A collection of shareholders’ money, invested by professional fund managers in an assortment of different securities

A collection of shareholders’ money, invested by professional fund managers in an assortment of different securities

Can help you reach a variety of financial goals Can help you reach a variety of financial goals

Determines the price of a mutual fund’s shares

Determines the price of a mutual fund’s shares

(total portfolio value) (total portfolio value)

Calculated at the close of each business day Calculated at the close of each business day

(number of outstanding shares)

(number of outstanding shares)

– (liabilities) – (liabilities)

Spreading outSpreading outMutual funds often contain Mutual funds often contain

your investment dollars among a number

of different securities

your investment dollars among a number

of different securities

100 or more100 or moresecurities.securities.

They analyze all the factors with potential impact on your money.

They analyze all the factors with potential impact on your money.

Trained professionals make investment decisions for the fund.

Trained professionals make investment decisions for the fund.

Simple to trade

Liquidity

Simple to trade

Liquidity

SEC regulations

No bankruptcy

SEC regulations

No bankruptcy

Managementcosts

Managementcosts

Taxes Taxes

Can issue as many shares as investor demand calls for

Can issue as many shares as investor demand calls for

Can hold an unlimited number of shares

Can hold an unlimited number of shares

Can issue only a limited number of shares

Can issue only a limited number of shares

Determined before the fund is ever established

Determined before the fund is ever established

Growth funds

Value funds

Blend funds

Sector funds

International funds

Also classified by “cap size”

Rate

Maturity

Credibility

Contain both stocks and bondsContain both stocks and bonds

Relatively higher rates of return over the short term

Relatively higher rates of return over the short term

Unique type of stock mutual fund that copies the performance of a particular stock market index

Standard and Poor’s 500 (S&P 500)

Nasdaq 100

Passively managed—less expensive

“Cousins” of mutual funds that trade like individual stocks

Prices depend on supply and demand rather than NAV.

“Spiders”

“Cubes”

“Cousins” of mutual funds that trade like individual stocks

Prices depend on supply and demand rather than NAV.

“Spiders”

“Cubes”

ObjectiveObjective

Explain how to buy/sell mutual funds.

Explain how to buy/sell mutual funds.

Where to BuyWhere to BuyReputable investment companyReputable investment company

• Vanguard• Vanguard

• Fidelity• Fidelity

• T. Rowe Price• T. Rowe Price

Banks Banks

Financial planners Financial planners

Insurance agencies Insurance agencies

All will charge you commissions, or

All will charge you commissions, or

NotNot to Buyto BuyWhereWhere

“loads.”“loads.”

Commissions Commissions

Look for expense ratios of 1.5 percent or less.

Look for expense ratios of 1.5 percent or less.

Managerial fees Managerial fees

• Avoid “load” fees.

• Phone

• Mail

• Online

Mutual funds that support your ideals and principles

Mutual funds that support your ideals and principles

• Anti-tobacco• Anti-tobacco

• Anti-alcohol• Anti-alcohol

• Anti-gambling• Anti-gambling

Quick CaseQuick Case

• Pro-religion• Pro-religion

• Environmentally friendly

• Environmentally friendly

ExamplesExamples

MarkED

Acknowledgments

Original DevelopersLelia Ventling and Sarah Bartlett Borich,

MarkED

Version 1.0

Copyright 2007MarkED Resource Center

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