Mutual FundsNet Asset ValueSlide 3FeesTypes of FundsTypes of Mutual FundsAdvantages of Mutual FundsDisadvantages1Mutual Funds•Diversified portfolio of stocks, bonds or other securities run by a professional manager–$ 7.9 trillion in assets; 8,300 different funds –Investors own shares in the fund•Broadly diversified or focused on specific industries•Largest managers – Fidelity and Vanguard2Net Asset Value•NAV = market value of all securities held (net of liabilities) divided by number of shares•Mutual Funds or open-end funds stand ready to issue more shares at NAV or buy them back•Closed-end funds have a fixed number of shares; must sell to another investor34Fees•Earnings come from dividends, interest and capital gains distributed annually•Load or No-load types– load is a one-time sales charge (either front or back-end)–Up to 8.5% plus•Management/admin fees up to 3% and•12b-1 fees up to 1% for marketing/advert5Types of Funds•Money Market MF – short-term, little risk•Bond funds – range from Governments to corporates to municipals to junk bonds•Stock funds categorized as aggressive growth, small company, growth and income, sector funds, index funds•International stock or bonds•Balanced or asset allocation funds6Types of Mutual Funds7Advantages of Mutual Funds•Diversification through pooling•Flexibility – many types of funds•Professional management•Minimum transaction costs•Liquidity – for open-end funds, manager will buy back at NAV •Provide services8Disadvantages•Can’t avoid systematic risk that affects whole market•Can’t match market performance because of fees (loads, expenses, 12b –1 fees)•Not all funds are safe (junk bonds)•Some trade frequently, recognizing short-term capital
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