Indirect Investing

Flash Cards ‐ Indirect Investing Types of Investment Companies Mutual Fund (Open‐End) Closed‐End Mutual Fund Exchange Traded Fund Fund Family Money Market Fund Bond Fund Equity Fund Hybrid (or Balanced) Fund Value Fund Growth Fund Index Fund 1) Mutual Fund (Open‐End Fund) 2) Closed‐End Fund 3) Exchange Traded Fund (ETF) 1) Shares are created or destroyed depending on demand. 2) Investors buy shares or redeem (sell) shares directly from the mutual fund. 3) By far the most common type of investment company. 1) Fixed number of shares of each fund. 2) Shares trade on a stock exchange. Investors buy shares from or sell shares to other investors. 3) Relatively uncommon. 1) Shares are created or destroyed depending on demand. 2) Shares trade on a stock exchange. Investors buy shares from or sell shares to other investors. 3) Have experienced rapid growth recently. An investment company offering a number of different mutual funds 1) Invests in money market securities 2) The value of the shares are generally held constant at $1.00 3) May offer check writing privileges A mutual fund that primarily invests in bonds. A mutual fund that primarily invests in stocks. A mutual fund that invests in both stocks and bonds. An equity fund that seeks to find stocks that are undervalued based on current earnings and other economic factors. Also, funds that invest in low‐P/E‐ratio companies. An equity fund that seeks to find stocks that are expected to grow rapidly in the future. Also, funds that invest in high‐P/E‐ ratio companies. Mutual funds holding a bond or stock NAV Annual Expenses (Mutual Funds) Load Mutual Fund Share Classes Morningstar Ratings Benchmarking (Mutual Funds) No‐Load Mutual Fund International Funds Why invest through mutual funds? portfolio designed to match a particular market index, e.g., an S&P 500 fund Net Asset Value is the per share value of the securities in a fund’s portfolio. =(Market value of securities‐ liabilities)/(Number of shares outstanding) Annual costs deducted from fund assets before earnings are distributed to shareholders. Expressed as a percentage of funds under management. A sales charge either at the time of purchase (front‐end load) or at the time of redemption (back‐end load). Class A: typically charge a front‐end load along with annual expenses. Class B: Typically do not charge a front‐end load but may charge a redemption fee. Annual expenses are typically larger than Class A shares. May be converted to Class A shares after a certain amount of time. Class C: Typically do not charge a front‐end load but may charge a redemption fee. Annual expenses are typically larger than Class A shares. A rating system for mutual funds that compare return and risk across a similar group of funds. Funds are rated from one start to five stars, with five being best. Comparing the performance of a mutual fund to an index of securities with similar risk. A mutual fund without a front‐end sales charge. Mutual funds that invests in stocks and bonds of foreign companies and governments. 1) Convenience. 2) Can be diversified while investing only a small amount. 3) Professional management.