How to Research & Select a Mutual Fund
Mutual Funds Name ___________________________
Hour _______ Date ________________
A mutual fund allows a group of investors to ___________________ their money together to achieve an agreed upon investment objective. A mutual fund will have a fund manager who is responsible for ___________________ the pooled money into specific securities (usually stocks or bonds).
1. When you invest in a mutual fund, you are buying___________________ (or portions) of the mutual fund and become a shareholder of the fund.
2. Two advantages:
[a] Ease of Investing -- you don't have to _________________ which stocks or bonds to buy.
[b] ______________________ - spreading out your money across many different types of investments thus reducing your___________________.
3. The Net Asset Value is the _____________ of 1 share. NAV is derived by dividing the total value of all the cash and _______________ in a fund's portfolio by the number of ________________ outstanding.
4. Trailing Returns: A fund’s “return” is its ___________________ (or ___________________) over a specified period of time. It includes both ...
[a] income in the form of ___________________ payments; and
[b] capital gains or losses caused by the increase or decrease in the value of its securities.
5. Morningstar rates mutual funds from one to five __________ based on how well they've performed in comparison to similar funds. Within each category, the top 10% = five stars, next 22.5% = four stars, etc.
To Find a List of Mutual Funds (1) Business section of newspaper (2)
Bonds
(1) A bond is an ___________ in which the issuer of the bond agrees to pay the owner of the bond the amount of the __________________ __________________ of the bond on a future date. Some bond issuers also agree to pay __________________ (coupon rate) at a specified rate at regular intervals.
(2) Bonds may be issued by [1] __________________________ or
[2] _______________________ or [3] _______________________ (cities).
(3) Bonds are a way for the government or corporations to __________________ money to finance new projects or expansions. Bond buyers are essentially __________________ money to the bond issuers.
(4) Bonds are usually a less __________________ investment than stocks but usually pay a higher __________________ rate than a savings account.
(5) The purchase price you pay for a bond is always less than its par value or _____________ _______________. For example, you pay ________ to buy this US Gov’t savings bond at right. In 10 years the Gov’t will pay you the bond’s face value which is _________.
(5) Coupon – the __________________ rate that the bond pays the holder each year until the bond’s maturity.
(6) Maturity – date the bond matures and will be __________________ to the bond owner.
(7) Current Yield – annual percentage rate of return earned on a bond. It takes into consideration the purchase price plus the coupon interest rate. ________________ is better!
(8) Fitch Ratings – an assessment of the security of the bond; that is, will the corporation will still be in ________________ and repay you when the bond matures.
AAA – best, reliable & stable
AA – quality, but little more risk
A – quality, but still riskier BBB may be ok, etc.
Mutual Funds TEACHER
A mutual fund allows a group of investors to __pool__ their money together to achieve an agreed upon investment objective. A mutual fund will have a fund manager who is responsible for __investing___ the pooled money into specific securities (usually stocks or bonds).
1. When you invest in a mutual fund, you are buying __shares___ (or portions) of the mutual fund and become a shareholder of the fund.
2. Two advantages:
[a] Ease of Investing -- you don't have to __pick__ which stocks or bonds to buy.
[b] __Diversification__ - spreading out your money across many different types of investments thus reducing your__risk___.
3. Trailing Returns: A fund’s “return” is its ___gains___ (or ___losses__) over a specified period of time. It includes both ...
[a] income in the form of __dividend___ payments; and
[b] capital gains or losses caused by the increase or decrease in the value of its securities.
4. Morningstar rates mutual funds from one to five __stars__ based on how well they've performed in comparison to similar funds. Within each category, the top 10% = five stars, next 22.5% = four stars, etc.
TEACHER TEACHER
Morningstar Rating for Funds
Morningstar rates mutual funds from one to five stars based on how well they've performed (after adjusting for risk and accounting for all sales charges) in comparison to similar funds. Within each Morningstar Category, the top 10% of funds receive five stars, the next 22.5% four stars, the middle 35% three stars, the next 22.5% two stars, and the bottom 10% receive one star.
Bonds TEACHER
(1) A bond is an __IOU___ in which the issuer of the bond agrees to pay the owner of the bond the amount of the ___face_____ __value___ of the bond on a future date. Some bond issuers also agree to pay __interest____ (coupon rate) at a specified rate at regular intervals.
(2) Bonds may be issued by [1] ___corporations______ or
[2] ___US Gov’t Treasury____ or [3] __municipalities___ (cities).
(3) Bonds are a way for the government or corporations to ___borrow___ money to finance new projects or expansions. Bond buyers are essentially ___loaning____ money to the bond issuers.
(4) Bonds are usually a less __risky____ investment than stocks but usually pay a higher __interest____ rate than a savings account.
(5) The purchase price you pay for a bond is always less than its par value or __face___ ___value____. For example, you pay _$50___ to buy this US Gov’t savings bond at right. In 10 years the Gov’t will pay you the bond’s face value which is _$100__.
(5) Coupon – the __interest___ rate that the bond pays the holder each year until the bond’s maturity.
(6) Maturity – date the bond matures and will be __paid___ to the bond owner.
(7) Current Yield – annual percentage rate of return earned on a bond. It takes into consideration the purchase price plus the coupon interest rate. ___Higher___ is better!
(8) Fitch Ratings – an assessment of the security of the bond; that is, will the corporation will still be in ____business_____ and repay you when the bond matures.
AAA – best, reliable & stable
AA – quality, but little more risk
A – quality, but still riskier BBB may be ok, etc.
TEACHER
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