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Mutual Fund

1) What is the difference between a load fund


and a no-load fund?
A load fund is a mutual fund which must be
purchased through a broker or other investment
advisor. The seller is paid a commission by the
mutual fund company for selling its funds.

With a front-end load, the commission is assessed


when purchases are made into the fund.

With a back-end load, the commission is


assessed when redemptions are made.
Some load funds appear to be no-load funds but
actually carry "hidden loads" no front- or back-
end loads, but they have higher annual
expenses. Through time, funds with "hidden
loads" may prove to be more expensive for the
investor to hold than either front- or back-end
load funds.
A no-load fund does not pay commissions to
brokers or investment advisors and may be
purchased directly from the mutual fund
company.

The no-load fund offers an advantage to investors


because, by avoiding the commission (which
can be as high as 8.5%), they can buy more
shares in the fund with a given amount of
capital, and therefore, other things being equal,
earn a higher rate of return.
2) What is the difference between a growth fund
and a balanced fund?
The objective of a growth fund is long-term
growth and capital gains are the primary goals
of such funds, and as a result they invest
principally in common stocks that have above-
average growth potential. They are usually
viewed as long-term investment vehicles that
are most suitable for the more aggressive
investor who wants to build capital and has
little interest in current income.
Balanced Funds are so named because they tend
to hold a balanced portfolio of both stocks and
bonds, and they do so for the purpose of
generating a well-balanced return of current
income and long-term capital gains.

For the most part, they confine their investing to


high-grade securities, and are therefore usually
considered a relatively safe form of investing.
3) If growth, income and capital preservation are the
primary objectives of mutual funds, why do we
bother to categorise them by type?
Even though growth, income, and capital preservation are
primary mutual fund objectives, each fund concentrates on
one or more particular goal(s). Thus
(i) for people who rely heavily on current income, an
investment in an income fund would be the right choice.
(ii)Investors who do not require the current income and are
content with waiting for capital appreciation can benefit
from growth funds.
These classifications of mutual funds are helpful in
determining whether or not the goal of the mutual fund is
compatible with one's own investment objective. The SEC
requires that the specific objective of a fund be stated in its
prospectus, along with how it intends to meet its objective.
4) What are the most common reasons for buying
mutual funds?
The most common motives for purchasing mutual fund shares
are diversification, professional management, financial
return, and convenience.
Diversification
The primary motive for investing in mutual fund shares is the
ability to diversify and diminish risk by indirectly investing
in a number of different types of securities and/or
companies.
Professional mangement
The fact that a professional manager is paid to make
investment decisions is expected to improve the owners'
returns.
Financial Return

Mutual funds also offer the small investor a way to invest


with little start-up capital. In fact, some funds require
only a very low or even no minimum initial investment if
an automatic monthly draft is made from the investors
bank account.

To keep expenses low, the investor can pick a quality no-


load fund and bypass the broker entirely. These funds
are easy to get into, easy to get out of, and the investor
doesnt have to worry about whether to take physical
possession of the securities or not.
Convenience
Mutual funds also provide a way to invest in areas that an
investor may not fully understand, and in reality, many
people do not have the time or inclination to track their own
investments. Convenience, provided by the fact that
investment company shares can be purchased through a
variety of sources, also adds to their appeal.
Others

In addition, mutual funds provide their investors with a variety


of services, like automatic reinvestment plans, phone or
online switching, and conversion privileges.
5) Briefly describe the basic structure and
investment considerations associated with real
estate investment trust (REIT)
The basic structure of a REIT is like a mutual
fund in that it sells shares of stock to the
investing public and uses the proceeds, along
with borrowed funds, to invest in a portfolio of
real estate investments.
The investment consideration associated with a
REIT is that income earned by the REIT is not
taxed while dividends on common stocks
normally are taxed.
6) A year ago, the Everlast Growth Fund was
being quoted at an NAV of RM21.50 and an
offer price of RM23.35 , today it is being quoted
at RM23.04 (NAV) and RM25.04 (offer).
Calculate the rate of return of this fund if the
dividends and capital gains distribution over the
year totalled RM1.05 a share.
Approximate Yield:

Dividends and + Ending Price Beginning Price


Capital gains distributions 1- year time period
Ending Price + beginning Price
2
= 11.62%