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FIN 3080: Personal Investment Planning

Assignment #3a: Mutual Fund Research

Total Marks _____ / 25 = _____%

Introduction

As you learned earlier, mutual funds are another type of investment that relies on a professional fund manager to make sound investment choices without the guess work. To comprehend mutual funds, you need to understand related terminology. Read each definition below and become familiar with the various terms associated with the concept and apply them to the table within the next section.

• Type of Fund - the type of fund commonly found such as fixed income, growth or equity, ethical, etc... Refer to the previous activity for a list of definitions.

• Price/Unit - similar to share prices, mutual funds are priced depending on what the market values is at the time of purchase.

• Performance - refers to the interest earned by the mutual fund over a past period of time. For example a particular mutual fund's past performance will be measured or the average interest rate will be stated over a period of time such as 1, 2, 5 or 10 years.

• Management Style - there are various management styles of fund managers such as:

o Growth Managers - Focused on stocks with earning or long term growth potential.

o Value Managers - Focus on undervalued companies.

o Growth at a Reasonable Price (GARP) - combination of value and growth.

• Objective of Fund - this is a description from the mutual fund manager of what their investment strategy or targets are and where they will invest your money. Fund objectives can be worded in a cautious, optimistic or even an aggressive manner.

• Asset Allocation - provides a breakdown of assets within a particular mutual fund. Example: 65% stocks,/20% bonds/15% cash

• Holdings - the name of companies fund managers invest your money within.

• Sectors - refers to the area of investment. If you recall there are many sectors including: consumer, resources, industrial, etc...

• Total Assets in Fund - the value of the mutual fund in dollars.

• Mutual Fund Fees - the fees or sales commission associated with purchasing mutual funds:

o Front End - paying a fee at the time of purchase of mutual funds.

o Back End - paying a fee commission at the time the mutual funds are sold.

o No Load - no sales commissions associated with the mutual fund.

o Management Expense Ratio MER - a commission charged to the customer before any interest is paid out - these rates vary between mutual funds and are expressed as a percentage.

• Registered Retirement Savings Plan (RRSP) Eligibility - refers to whether or not you can use your mutual fund investment to offset the amount of taxes you pay. For example, if you earn $100,000.00 a year but purchase $20,000 in a RRSP eligible mutual fund, you now pay $80,000.00 in taxes instead of the original amount. This is a simple example and there is more to taxation beyond this case, but this highlights the importance of RRSP eligible funds to reduce your tax burden.

Activity: Part 1

Your objective is to search at least three Canadian growth or equity funds that are open, RRSP eligible, carry a = 7% over the past five years. Use the following link: and click on the "Fund Filter" link within the resource section. Be sure to filter your information according to the criteria above. Record all your information in the table below. (15 marks)

|Criteria |Mutual Fund #1 |Mutual Fund #2 |Mutual Fund #3 |

|Name of Fund | | | |

| | | | |

|Type of Fund | | | |

| | | | |

|Current price/unit | | | |

| | | | |

|Performance | | | |

|over 1 year | | | |

|over 3 years | | | |

|over 5 years | | | |

|over 10 years | | | |

|Name of Fund Manager | | | |

| | | | |

|Management Style (conservative, | | | |

|moderate, or aggressive risk taker?| | | |

|– based on volatility meter.) | | | |

|Objective of Fund | | | |

| | | | |

|Criteria |Mutual Fund #1 |Mutual Fund #2 |Mutual Fund #3 |

|Portfolio Composition |

| |

|Asset Allocation | | | |

| | | | |

|Top 5 Holdings of Each Fund |. |. |. |

| |. |. |. |

| |. |. |. |

| |. |. |. |

| |. |. |. |

|Top 3 Sectors |. |. |. |

| |. |. |. |

| |. |. |. |

|Total Assets in Fund | | | |

| | | | |

|Management Expense Ratio (MER) | | | |

| | | | |

|Minimum Investment Required | | | |

| | | | |

|RRSP Eligibility | | | |

| | | | |

Continued on next page...

Activity: Part 2

Write a short report comparing the three mutual funds you researched against the specific criteria that was given to you in Part 1 of this assignment. Recommend a mutual fund you would pick to achieve the investment objective and give at least five supporting reasons.

1.

2.

3.

4.

5.

All information should be well written with information summarized with recommendations and conclusions made regarding the mutual fund selected. (10 marks)

Evaluation

Please print out this activity upon completion and hand in to your teacher.

Note the following breakdown of marks for this assignment:

• Part 1 receives 15 marks in total with five full marks for each mutual fund successfully researched.

• Part 2 receives 10 marks in total where your mutual fund recommendation is worth two marks and each of your four supporting reason is worth an additional two marks.

This assignment is valued at a total of 25 marks.

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