Chapter 4 Class Notes
Chapter 4 Class Notes FIN 3050
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This 3 page Class Notes was uploaded by Arianna Laurenza on Monday October 19, 2015. The Class Notes belongs to FIN 3050 at Clemson University taught by Kerri McMillan in Summer 2015. Since its upload, it has received 47 views. For similar materials see Investment Analysis in Finance at Clemson University.
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Date Created: 10/19/15
101415 Chapter 4 Mutual Fund Investing Including notes from class from Friday Oct 9 ClosedEnd vs OpenEnd Funds 0 ClosedEnd Mutual Fund has a fixed number of shares 0 Purchasers and sellers must trade with each other 0 Shares are bought from the fund only at inception 0 Fund does not stand ready to buy back shares from investors 0 Trade in securities markets at a discount or premium from Net Asset Value 0 7580 of closedend funds trade at 1015 below actual value 0 OpenEnd Mutual Fund stands ready at all times to sell or buy back shares 0 Continually issue and redeem shares 0 Net Asset Value NAV computed at the end of each day total value of Securities Liabilities NAV Shares Outstanding Load Funds 0 Fund that charges a commission for the sale of its shares 0 Commission may be as high as 850 o NAV is different from offer price because the commission must be paid Offer Price 2000 NAV 1875 Commission 125 load NAV must go up by 7 from 1875 for the investor to break even 0 Front end load fee charged when purchasing 0 Back end load fee charged upon redemption Fee Structure 0 Class A Shares charge a fee or sales commission when you invest 0 Class B shares back end load deferred sales charge or surrender charge 0 If you stay invested in the fund for typically 5 years or more you will not pay a back end load 0 No load no sales commission buy directly from the mutual fund company 4 Basic Types of Mutual Fund Fees and Expenses 1 12b 1 fees pay for advertising and direct mailing costs up to 125 2 Management fees based on size of fund 02510 3 Expense ratio administrative costs 4 Trading costs turnover ratios how much trading a fund does 0 10 means a fund sold off its entire portfolio and replaced it once Mutual Fund Services Automatic reinvestment of dividends Automatic reinvestment programs Check writing or money market funds Exchange privileges in mutual fund families Periodic Statements on number of shares owned and their worth Class Notes FIN 3050 Investment Analysis 10142015 9 Mutual Fund Categories Classification by Investment Objective Style MarketCap Large Medium Small Growth Blend Value X Ex Small Cap Value Market Cap numbers not set in stone rough estimates Large market value gt 83 billion Medium market value between 12 billion and 83 billion Small market value lt 12 billion Growth rapidly rising sales and earnings Blend both growth and value characteristics Value undervalued company Advantages of Investing in Mutual Funds Diversification Professional management Ease of buying and selling shares Small amount of money often required to open a mutual fund account Multiple withdrawal options Distribution or reinvestment of income and capital gains Switching privileges within the same fund family Services that include tollfree telephone numbers complete records of all transactions money market accounts Disadvantages of Investing in Mutual Funds Class Notes Purchase withdrawal costs Ongoing management and 12b1 fees Poor performance that does not match SampP 500 s index or some other index Inability to control when capital gain distributions occur and complicated taxreporting issues Potential market risk associated with all investments Some sales personnel are aggressive and or unethical FIN 3050 Investment Analysis 10142015 How to Select a Mutual Fund Look for no load funds and no 12b1 fees Consider funds with low expense ratios Low turnover ratios Research the fund manager Diversify Consider index funds Calculate how fees affect your return Read the reviews Evaluate performance 10 Dollarcost average 11 Stay the course DPONP SJ 9WNE Target Date Funds Four Quadrants for Mutual Fund Investing Dave Ramsay Growth Stocks International Stocks Growth and Income Stocks Aggressive Growth Stocks o What percent of your net income foes into 401k investing via mutual funds 15 0 Get rid of car loans and your home mortgage Class Notes FIN 3050 Investment Analysis 10142015