SIE Chapter 9: Mutual Fund Investment Objectives

Equity Fund

An investment tool that pools money from many investors to invest in the buy stock sin various companies

Equity Income Fund

A fund where both preferred and common shares that have a history of consistently paying dividends are purchased; utility stocks are common since they typically pay the greatest percentage of earnings to stakeholders

Sector Fund

Refers to mutual funds that commit at least 25% of their assets to a single industry

Index Funds

A type fo fund devloped to reflect the performance of a big market like the DIA or S&P 500; the portfolio of this fund includes the stocks that makeup the index that the fund has been developed to monitor

Growth and Income (combination) Fund

Invested to attain both current income and capital appreciation; one portion is invested in to preferred and common shares that pay high dividends, the other is invested into common stock with highest potential for capital appreciation

Balanced Funds

A type fo fund that invests in bonds and stocks using a standard formula, ex., 30% in bonds and 70% in equities

Asset Allocation Funds

A type fo fund invested in bonds, stocks, and money market instruments based on projected performance of each market; adjusted based projection of which allocaiton will have the highest yield

Bond Funds

Equivalent of buying an equity security that corresponds with their undivided interest in a debt portfolio

Corporate Bond Funds

Type of fund invested in debt securities issued by corporations

Government Bond Funds

Type of fund invested in debt securities issued by the American government including notes, bonds, and trasury bills

Minicipal Bond Funds

Type of fund invested in portfolios of municipal debt

Money Market Funds

Type of fund invested in short-term money market instruments that include commercial paper, banker’s acceptance, and other debt securities that will mature in 1 year

Forward Pricing

The price paid by the investor purchasing the shares and the price paid by the investor redeeming the shares are determined by the price which is estimated after the investor’s order has been reeived by the fund

Net Asset Value of a Fund

Calculated as NAV = assets - liabilities, NAV per share is estimated by total net asset/tlta no. shares

Sales Charge

Represents the cost of distribution which is a responsibility of the investor, not an expense of the fund; it is not permissible for an open-end fund to charge a sales charge more than 8.5% of POP

Front-end Loads

Type of sales charge paid by an investor after buying shares; this amount is removed from the total amount invested and the residual balance is invested in the portfolio at the net asset value (“A” shares)

Back-end loads/Contingent Differed Sales Charge (CDSC)

Sales charge is paid when the investor redeems the fund shares; sales charge depends on the value of shares to be redeemed (“B” shares)

Breakpoint Schedule

This sales charge reduction can be awarded to couples, trusts, corporations, and accounts for children younger than 18; means to reduce the sales charge depending on the amount of dollars spent

Breakpoint Sales

Violation of this rule means that an authorized representative attempts to increase their own commission by suggesting the purchase of mutual fund shares at a dollar amount lower than the breakopint so that the investor can be awarded a breakpoint sales charge reduction

Rightes of Accumulation

Investors can qualify for a reduced sales charge on future investments after the value of the investor’s account and its growth has been assessedA

Automatic Reinvestment of Distributions

Investors can choose to reinvest their distributions into the fund and buy additional shares with the distributor; most mutual fund shares can be purchased at the NAV once distributions are reinvested

Closed-end funds

These funds are invested without a sales charge; to buy, investor must pay the current market price and the brokerage firm commision required for the order to be executed

Exchange-traded Funds (ETFs)

Formulated through pool of securities developed to monitor the performance of a sector or index; cost less and can be bought on margin

ETFs tracking weighted indicies

Can track fundamentall weighted, equally weighted, volatility weighted, and alternatively weighted indices