Mutual fund types
·
Stock fund
·
Bond fund
·
Hybrid fund
·
Money market mutual fund
Investment risk
·
Potential for an investment to lose value
·
High risk-chance of loss is high but potential
for high return
Investment risk profile
·
Suitability of customer for different types of
investment by how much risk they can afford to take
Investment Company act of 1940
Diversified investment company:
·
75% of
assets invested so no more than 5% of total assets invested in one company at
any time,
·
investment co. can NOT own more than >10% of
outstanding voting stock of one company
·
(75-5-10)
Specialized investment company
·
Do not pass go-diversified investment co.
objectives unmet
·
A.k.a. sector fund-invest in one type of
industry
·
Good for young people
·
Bad for elderly/retirees
Which of the following best describes a “diversified” investment
management company?
·
75% of the investment company’s assets invested
so no more than 5% invested in any one co.
·
fund can
NOT own more than 10% of outstanding shares of another co.
Stock funds:
Growth fund
·
growing well
·
low dividend
·
re-invest profits in growing company.
·
NAV may increase
·
Aggressive-buy new companies with potential for
rapid $ money making, good for young people in their 20s and 30s
·
Conservative-buy well established companies with
potential for $ money making, for middle aged investors-40s/50s
Other stock funds:
·
Growth and income fund
·
Global equity fund
·
Income equity fund
·
International fund
·
Regional equity fund
·
Sector equity funds
Bond funds
·
Buy muni and corporate bonds
·
Goal: wealth preservation
·
Goal: asset preservation
·
High rated bonds, secure, may not lose principal
·
Interest rates decline, value increases
·
Interest rates increase, value decreases
·
Interest rates increase, NAV decreases
Types of bond funds
·
Corporate-buy debt of corporations why: income first, next safety of principal
·
Government,
safety of principal, next income
·
Municipal bond fund-want tax free income
·
Tax free bond funds-good for high tax bracket,
can lose principal value if interest rates increase
Bond term lengths
·
Short term
·
Intermediate term
Hybrid funds:
Balanced fund
·
Buy bonds and stocks
·
To preserve principal
·
To get dividends and interest
·
To get long term growth
·
For people close for retirement
Venture capital:
·
Invest in new companies
·
Don’t need to buy new issue
Money market funds
·
Buy short term debt securities-
·
Buy commercial paper
·
Buy banker’s acceptances
·
Buy repurchase agreements
·
Buy T-bills
·
Buy negotiable CDs
·
NOT non-negotiable CDs
·
Securities mature in less<30 days
·
Gives buyers credit interest daily
·
Short term investment
Newspaper footnotes
·
P, 12-b-1 fees-charged
·
R, redemption fees or contingent deferred sales
charges-charged
·
T, 12-b-1 fees + redemption fees-charges
·
NL, no-load mutual fund, no transaction cost
