Chapter 13: Investing in Mutual Funds and ETFs
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Questions and Answers

What does the 'p' following a mutual fund abbreviation indicate?

  • The fund is high-performing
  • The fund has a 12b-1 fee (correct)
  • The fund has no fees
  • The fund charges back-end loads

    • What does the 'r' following a mutual fund abbreviation indicate?

  • The fund has a back-end load fee (correct)
  • The fund is an open-end fund
  • The fund is a value fund
  • The fund has high returns

    • What are dividends?

    Distributions of a portion of the earnings from the companies whose stock is included in the fund.

    What does capital appreciation refer to?

    <p>The increase in share price of the underlying securities.</p> Signup and view all the answers

    What is a value fund?

    <p>A fund that targets stocks priced below their true value.</p> Signup and view all the answers

    What is an equity-income fund?

    <p>A fund composed of high-yield, high-grade common stocks.</p> Signup and view all the answers

    What is a growth-and-income fund?

    <p>A fund that balances current income and capital gains with an emphasis on capital gains.</p> Signup and view all the answers

    What does an asset allocation fund do?

    <p>Divides investments wisely among different types of asset classes.</p> Signup and view all the answers

    What is an international fund?

    <p>A fund that invests solely in foreign securities.</p> Signup and view all the answers

    What do asset allocation funds depend on?

    <p>The market conditions</p> Signup and view all the answers

    What is a growth fund aimed at?

    <p>Capital appreciation.</p> Signup and view all the answers

    ETFs generally come with a higher tax liability than mutual funds.

    <p>False</p> Signup and view all the answers

    Shares in a closed-end fund are bought and sold directly from the fund itself.

    <p>False</p> Signup and view all the answers

    Investors can trade shares of an open-end fund on the stock exchange.

    <p>False</p> Signup and view all the answers

    What does NAV stand for?

    <p>Net Asset Value.</p> Signup and view all the answers

    What is a growth and income mutual fund's main purpose?

    <p>To achieve current income and long-term capital gains</p> Signup and view all the answers

    Diversification is useless and just requires investing in a single stock.

    <p>False</p> Signup and view all the answers

    Diversification is different for which of the following?

    <p>All of the above</p> Signup and view all the answers

    Study Notes

    Mutual Fund Fees and Performance

    • Mutual funds can charge various fees such as 12b-1 fees, back-end loads, or redemption fees, indicated by specific letters in the fund abbreviation.
    • Funds with lower or no fees are generally recommended as charging fees does not guarantee better performance.

    Dividends and Earnings

    • Mutual funds often provide income through dividends, which are a portion of earnings from underlying stocks.
    • Dividends are represented in dollar amounts paid per share; rising share prices lead to capital appreciation and potential earnings upon selling shares.

    Types of Mutual Funds

    • Value Fund: Focuses on undervalued stocks with potential for growth.
    • Equity-Income Fund: Consists of high-yield, high-grade common stocks and some convertible securities.
    • Growth-and-Income Fund: Balances current income and capital gains, with an emphasis on capital gains.
    • Asset Allocation Fund: Diversifies investments among different asset classes based on a predetermined mix, adaptable to changing market conditions.
    • International Fund: Exclusively invests in foreign securities.
    • Growth Fund: Aims for capital appreciation, suitable for long-term investors willing to accept risk.

    ETFs vs. Mutual Funds

    • ETFs have a lower tax liability compared to mutual funds due to less frequent trading and resulting taxable capital gains.
    • Closed-end funds are publicly traded and shares are exchanged among investors on exchanges.
    • Open-end funds allow direct transactions with the fund, issuing new shares based on demand.

    Understanding Diversification

    • Diversification spreads risk and provides protection against major losses, but is not deemed useless.
    • The approach to diversification varies depending on age, income volatility, and risk aversion.

    Mutual Fund Basics

    • A mutual fund allows investors to pool their resources to create a diversified portfolio.
    • NAV stands for Net Asset Value, a critical metric in assessing mutual fund value.
    • Growth and income mutual funds aim to balance current income and long-term capital gains, with inherent risks and volatility.

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    Description

    Explore the essentials of investing in mutual funds, ETFs, and real estate with this flashcard quiz. Learn about fees like 12b-1 and how they affect fund performance in your investment decisions. A must for anyone looking to navigate the investment landscape wisely.

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