An Introduction to

Mutual Funds
PowerPoint Notes

What are Mutual Funds?

Mutual funds are a type of investment
that takes money from many investors
and uses it to make investments based
on a stated investment objective.
Each shareholder in the mutual fund
participates proportionally (based upon
the number of shares owned) in the gain
or loss of the fund.

Why do People Invest in

Mutual Funds?
Mutual funds offer investors an affordable way to
diversify their investment portfolios.
Mutual funds allow investors the opportunity to have a
financial stake in many different types of investments.
These investments include: stocks, bonds, money
markets, real estate, commodities, etc
Individually, an investor may be able to own stock in a
few companies, a few bonds, and have money in a
money market account. Participation in a mutual fund,
however, allows the investor to have much greater
exposure to each of these asset classes.

Continued
Most mutual funds are professionally managed
by an investment expert known as a portfolio
manager.
This individual makes all of the buying and
selling decisions for the fund.
There are thousands of different mutual funds
in the United States.
This provides investors with many options to
help them achieve their investment objectives.

Basic Mutual Fund

Categories

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Mutual Funds can be divided into four basic

categories based upon the funds investment
objective.
These categories are:
Money Market Mutual Funds
Stock Mutual Funds
Index Funds
Bond Mutual Funds
Balanced Mutual Funds

Money Market Mutual

Funds
This is the most conservative type of mutual fund.
The goal is to maintain the $1 value of its shares while
providing income.
Invests in high-quality, short-term securities such as
certificates of deposit, U.S. Treasury Bills, and U.S.
Treasury Notes.
MMMFs are an appropriate place for savings.
These funds have typically offered higher interest rates
than bank savings accounts.
Money market mutual funds are not insured by the
FDIC.

Stock Mutual Funds

Type of fund that invests in stocks.
These funds are also known as equity funds.
There are many different types of stock mutual
funds.
Some of the most common include:
Large-cap funds, mid-cap funds, small-cap funds,
income funds, growth funds, value funds, blend
funds, international funds, and sector funds.

Index Funds
These are mutual funds whose holdings aim to track
the performance of a specific stock market index.
The most common index fund tracks the S&P 500.
These index funds invest in the exact stocks (and in
the same percentages) as those found in the S&P 500.
Index funds also track bonds, real estate, and other
types of assets.
These funds are lower cost than other types of funds.

Good News!
It is time for us to begin watching a
Nightly Business Report Video on Mutual
Funds!
With a question sheet of course!
Dont worry we will continue the
PowerPoint during our next class!

Bond Mutual Funds

Type of mutual fund that invests in
bonds.
There are different types of bond mutual
funds.
Typically, bond mutual funds have the
objective of providing stable income with
minimal risk.

Types of Bond Mutual

Funds
Short, Intermediate, and Long-Term U.S. Bond
Funds
Short, Intermediate, and Long-Term Corporate
Bond Funds
Municipal Bond Funds
High-Yield (junk) Bond Funds
We will talk more about bonds and bond funds
later in this unit of study.

Balanced Mutual Funds

These are also known as hybrid funds.
These mutual funds invest in stocks,
bonds, and money markets.
These are very diversified mutual funds.
The stock portion of the fund provides the
potential for capital appreciation, while
the bond and money market portion
provide income.

The Mutual Fund

Prospectus
This is a legal document which describes
the investment objective of the fund, the
manner in which the fund is administered
and operated, the fees and other pertinent
information.
The prospectus should be read thoroughly
before making an investment decision.

Load v. No Load Mutual

Funds
A mutual fund that charges a commission to
cover its administrative costs is called a load
fund.
A front-end load charges the load when the
shares are purchased, while a back-end load
charges the load when the shares are sold.
A no-load mutual fund doesnt charge a
purchase or sales commission.

Major Mutual Fund

Companies
Vanguard, Fidelity, and T. Rowe Price are
three of the worlds major mutual fund
companies.
http://vanguard.com
http://fidelity.com
http://troweprice.com