22 Mutual Funds

22 Mutual Funds - Prentice-Hall, Inc. What Is a Mutual...

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Prentice-Hall, Inc. 1 Chapter 15 Mutual Funds: An Easy Way to Diversify What Is a Mutual Fund? ______________ that pools money from investors to buy stocks, bonds, and other investments. Investors own a share of the fund proportionate to the amount of the investment. Why Invest in Mutual Funds? • Benefit the small investor – diversification and reduced risk. • Level the playing field between corporations and the individual investor corporations and the individual investor. Advantages of Mutual Fund Investing • Diversification -- owning numerous securities reduces risk • Professional management (one hopes) • Minimal transaction costs Minimal transaction costs • Liquidity • Flexibility •S e r v i c e • Avoidance of bad brokers Disadvantages of Mutual Fund Investing • _______________market performance – 1989-1998, average annual returns • actively managed stock funds, 15.6% • S & P 500 stock index, 19.2% •Cos ts • Risks -- Unsystematic risk • Risk -- Systematic risk
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Prentice-Hall, Inc. 2 4 Types of Investment Companies 1. _______ investment companies or mutual funds 2. _________ investment companies or mutual funds 3. _________________ 4. ________________ investment trusts (REITs) 1. Open-End Investment Companies or Mutual Funds • Have an unlimited number of shares • Buy and sell shares directly to investors without a secondary market • Purchase and selling price is determined by the __________________ of the fund
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22 Mutual Funds - Prentice-Hall, Inc. What Is a Mutual...

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