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					                               MUTUAL FUND BASICS

1.       What is a Mutual Fund?
        Investors pool (combine) their funds
        An investment company invests the money in stocks, bonds, T-bills, etc. depending on
         the type of fund
        Mutual funds are sold in shares or units
        Most investors don’t keep track of the shares or units they own, just the dollar value in
         the mutual fund and/or the fund’s % return
        A mutual fund can increase in value because of capital gains, dividends and/or interest
        Usually the dividends and interest are reinvested (to buy more stocks, bonds, etc.) so the
         value of the fund increases


2.       Why Mutual Funds?
Accessibility
    Mutual funds have low investment minimums, making them accessible to nearly
       everyone
    The minimum investment can be as low as $100 or $25 a month

Instant Diversification
    Mutual funds typically hold 50 to 100 different investments
    Diversification lowers your investment risk
    That degree of diversification that would be difficult to achieve on your own

Professional money management
    Investment professionals have the expertise to make wise investment decisions
    They continually track financial markets

Flexibility
    A wide variety of mutual funds are available to meet almost any investment need

Commission Savings
   Because mutual fund managers are buying and selling large lots of securities at a time,
    commissions are minimized
   It’s cheaper on a per share basis to sell large lots of shares instead of smaller lots


3.       There Must Be a Catch
        Having investment professionals manage your money comes at a price
        This is called a management fee
        The fee is usually a percentage of the fund's average net asset value (the market value of
         the fund's portfolio divided by the number of fund shares)
4.       How and Where Do You Buy Mutual Funds?
        Mutual funds are sold through banks, trust companies and insurance companies
        They are also available from investment advisors, financial planners and stock brokers
        Mutual funds are not sold on the stock market
        You do not have to be a stock broker to sell mutual funds
        When you want to purchase mutual funds, you speak with a registered mutual funds
         representative
        That person will assist you in making a wise investing decision based on your age, goals,
         time horizon, investment knowledge, risk tolerance, etc.
        They often use a questionnaire or other assessment tool to help them decide which
         investments to recommend
        When you purchase mutual funds you would usually indicate how much money you
         would like to invest, not how many shares you want


5.       What is a Prospectus?
        A prospectus is a legal document that outlines the fund’s objectives, the organization
         responsible for managing the fund, the types of securities the fund’s manager may invest
         in, etc.
        It also contains a disclaimer warning investors that a) their funds are not guaranteed or
         insured and b) that the fund’s past performance is not guarantee of future performance

				
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posted:10/2/2011
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