1. McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. C HAPTER P LAYLIST S ONGS : “MONEY” BY PINK FLOYD“MONEY” BY PINK FLOYD –LIVE 8 “MONEY” BY PINK FLOYD” “MONEY” BY PINK FLOYD” – ORIGINAL VIDEO Mutual Funds

2. 12-2 Mutual Fund Basics Mutual fund: investment vehicle Fund manager: The person or people responsible for Closed-end mutual fund: A publicly traded mutual fund that raises capital Open-end mutual fund: A mutual fund in which

3. 12-3 History of Mutual Funds 1893 – (closed-end) Boston Property and Trust 1929 – Stock 1980s – Open-end mutual funds 2009 – Median investment in mutual funds by household = Mutual funds are regulated by the

4. 12-4 Costs and Fees of Mutual Funds Front-end load: Back-end load: No-load mutual fund: Net asset value (NAV): Expense ratio:

5. 12-5 Characteristics of Mutual Fund Investors (May 2009)

6. 12-6 Types of Mutual Funds Actively Managed Mutual Fund  Professional fund managers trying to maximize the return on the fund and finding assets that meet the fund’s objective  Index Market Funds   Not actively managed 

7. 12-7 Types of Mutual Funds Exchange-Traded Funds (ETFs)   Can be traded throughout the day on a stock exchange  Equity Mutual Funds  Stock mutual funds   Focus on a specific sector of the economy 

8. 12-8 Total Net Assets and Number of ETFs

9. 12-9 Types of Mutual Funds Bond Mutual Funds   Bond rating Money Market Mutual Funds   Consists of short-term investments  Balanced Mutual Funds  Equity, bonds, and cash all in one fund 

10. 12-10 Benefits of Mutual Funds (Figure 12.3)

11. 12-11 Specific dollar amount to invest (e.g.$10,000) Divided into equal amounts over a specific time period (e.g. 10 months Specific dollar amount to be invested on a continual basis (e.g. $100/month) No specified amount or end date Dollar Cost Averaging vs. Continuous Automatic Investing

12. 12-12 Risk of Mutual Funds Only as secure as the assets they hold Watch the turnover rate

13. 12-13

14. 12-14 Costs and Classes of Mutual Funds Fees  Front-end load (5%, would only have $95 of every $100 put into the fund)   Commissions  Share Classes  Class A, B, & C

15. 12-15 Choosing and Buying a Mutual Fund Know your investment objective Research the funds  Fund’s investment objective   Principal risks of investing   Past performance 

16. 12-16 Choosing and Buying a Mutual Fund If you feel uncomfortable managing your own investments, you might want to talk to a financial planner, financial adviser, stock broker, or local banker

17. 12-17 Asset Allocation Balanced Fund Samples

18. 12-18 Choosing and Buying a Mutual Fund Open an account online with mutual find company   Look at requirements to open an account  Age  Discount broker  Scottrade, TD Ameritrade, e-Trade Banks

19. 12-19 Popular Online References Morningstar (www.morningstar.com)www.morningstar.com Yahoo Finance (http://finance.yahoo.com/)http://finance.yahoo.com/ Google Finance (www.google.com/finance)www.google.com/finance Value Line (http://www.valueline.com/)http://www.valueline.com/ Wall Street Journal (www.wsj.com)www.wsj.com MSN Money (www.money.msn.com)www.money.msn.com CNN Money (http://money.cnn.com)http://money.cnn.com

20. 12-20 Learn “A public-opinion poll is no substitute for thought.” ~ Warren Buffet, Venture Capitalist (1930 -) LO 12-1 Appreciate the history of mutual funds and understand mutual fund basics. LO 12-2 Examine the types of mutual funds. LO 12-3 Assess the benefits and risks of mutual funds. LO 12-4 Evaluate mutual funds in terms of their class, commission, and fee structure. LO 12-5 Plan how and where to invest in mutual funds.