Investing in Mutual Funds

Chapter 14

Goals for Chapter 14.1Explain why people invest in mutual

funds and the types of mutual funds available for investing.

Describe how to evaluate mutual funds before buying.

What are Mutual Funds?A mutual fund is a professionally

managed group of investments bought using a pool of money from many investors.

Most mutual fund companies offer a family of funds, which is a variety of funds covering a whole range of investment objectives.

Advantages of Mutual FundsProfessionally managedLiquidDiversifiedRequire only a small minimum

investment

Types of Mutual Funds A growth fund is a mutual fund whose

investment goal is to buy stocks that will increase in value over time.

An income fund is a mutual fund whose investment goal is to buy securities that consistently pay good dividends.

A growth and income fund is a mutual fund whose investment goal is to earn returns from both dividends and capital gains.

A balanced fund is a mutual fund that attempts to minimize risk by investing in a mixture of stocks and bonds.

A bond fund is a mutual fund that invests in bonds to try to achieve stable income with minimal risk.

A global fund is a mutual fund that purchases international stocks and bonds as well as U.S. securities.

An index fund is a mutual fund that tries to match the performance of a particular index by investing in the companies included in that index.

Evaluating Mutual FundsNet Asset Value (NAV) is the total

value of a fund’s investment portfolio minus its liabilities, divided by the number of shares outstanding.

The prospectus is a legal document that offers securities or mutual fund shares for sale.

If you buy a mutual fund through a broker, you will likely have to pay a sales fee, called a load.

A front-end load is a sales charge paid when you buy an investment.

A back-end load is a sales charge paid when you sell an investment.

A no-load fund does not charge a sales fee.

Goals for Chapter 14.2Describe direct real estate investments

and explain their advantages.List indirect real estate investments and

their features.Discuss some of the risks and

responsibilities of owning rental property.

Direct Real Estate Investments Real Estate is land and any building on it.

Raw Land Detached Houses A duplex is a building with two separate living

quarters. A condominium is an individually owned unit in

an apartment-style complex with shared ownership of common areas.

Recreation and Retirement Property

Indirect Real Estate Investments Real estate syndicates is a group of investors

who pool their money to buy high-priced real estate.

A real estate investment trust (REIT) is similar to a mutual fund. It pools the money of many individuals to invest in real estate.

A participation certificate is an investment in a pool of mortgages that have been purchased by a government agency.

Owning and Managing Rental PropertyA mortgage is a loan to purchase real

estate.Many real estate investors purchase

property to rent out and help pay the mortgage on the property.

Depreciation is a decline in the value of property due to normal wear and tear.