Finance 301 1st Edition Lecture 15 Outline of Last Lecture I Stock Market Transactions II Margin Trading Stock Price Increases III Margin Trading Stock Price Decreases IV Cash Purchases V Stock Market Transactions Outline of Current Lecture VI Background on mutual funds VII Mutual funds categories VIII Management of mutual funds Current Lecture I Background on mutual funds a What is a mutual fund i Asset in most 401k claims publically traded investment firm company that invests in stocks for us the investor Buying shares in a company that invests in a lot of stocks or bonds or both b Mutual funds are sometimes referred to as open end funds What does this mean i You are not trading with another investor like stocks Mutual funds 100 shares they just add 100 shares to their number of shares Can add and subtract everyday What they do with this money is invest in stocks that day Provide us diverse portfolio without us having to find each individual stock c The price per share of a mutual fund is equal to the net asset value NAV per share Priced once a day d Market Value Total MV of Assets I and D Received Expenses and any D Paid e Can trade mutual fund any time of the day only change a couple cents a day f NAV Market Value Shares Outstanding g Mutual Fund Distributions to Shareholders i Funds can generate returns to their shareholders in three ways ii Earned income passed on iii Earned income dividends coupon payments iv Distribute capital gains transfer earnings they make to us v Share price appreciation h Mutual funds pass their expenses to shareholders i What are these expenses i Sales Charge Mutual funds may be referred to as either as a load fund or a no load fund ii Load funds fees take percent of your money front or back end front end means they take it out of your initial investment back end is they take it when they sell out iii No load funds no fees iv Front end load and back end load can take a lot percent of your money and invest the rest j II Mutual funds categories a Growth Funds invest in small mid cap stocks stock price to rise smaller to medium sized companies b Income Funds investing in large stocks with high dividend and bonds cause you know you are going to get coupon payments c Growth and Income Funds all types of stocks and bonds d International and Global Funds international stocks e Specialty Funds certain sector such as transportation such as airplanes barges or financial or technology f Index Funds professors will tell you to invest in this is a fund that s made up of an index like a dow30 sp500 g Multifund Funds h Tax Free Funds i High Yield Junk Bond Funds good dividends j III Management of mutual funds a Management of Mutual Funds i Each mutual fund is managed by one or more portfolio managers who must focus on the stated investment objective of that fund b Interaction of Mutual Funds with Other Financial Institutions i The managing of a mutual fund sometimes leads to interaction with other financial institutions ii Some mutual funds are owned by commercial banks c Mutual Fund Use of Financial Markets i Each type of mutual fund uses one or more financial markets to manage its portfolio ii Multiple managers have to prove why they should but certain stocks multiple managers and they have to make a decision iii Mutual funds work with financial institutions first ones to get in on IPOs d