Questions and Answers
What does the 'p' following a mutual fund abbreviation indicate?
What does the 'r' following a mutual fund abbreviation indicate?
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?
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What is a value fund?
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What is an equity-income fund?
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What is a growth-and-income fund?
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What does an asset allocation fund do?
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What is an international fund?
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What do asset allocation funds depend on?
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What is a growth fund aimed at?
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ETFs generally come with a higher tax liability than mutual funds.
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Shares in a closed-end fund are bought and sold directly from the fund itself.
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Investors can trade shares of an open-end fund on the stock exchange.
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What does NAV stand for?
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What is a growth and income mutual fund's main purpose?
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Diversification is useless and just requires investing in a single stock.
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Diversification is different for which of the following?
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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.