Finances in Mutual Funds

Juliann Warnes

Financial Markets and Institutions FIN 3005-1001

Professor Sarakatsannis

January 3, 2014

1. Mutual Fund Services- They are attractive to small investors because the minimum investment is only $ 250 to $ 2,500. They can generate returns to the shareholders by transferring funds from one mutual fund to another within the same family just by making a phone call or requesting a transfer online.

2. Open-versus-closed-end funds- Open-end funds are open to investors; sells shares at any time, investors are allowed to sell shares are always changing, offer different services and tax information.

Closed-end funds- closed to new investors after initial offering of shares, do not repurchase shares they sold, investors can sell shares on a stock exchange (secondary market) and new investors can purchase shares on the stock exchange. Closed-end funds can be sold by investors and open-end funds cannot be sold by investors.

3. Load versus No Load Mutual Funds- Load is a sales charge or commission that is charged on newly purchased shares, add a percentage to the NAV in order to get the sales price, the difference is the sales charge which is from 1 percent to 6 percent. There are two different basic types and those are front-end loaded funds with the sales charge included, and investors pay the charge upfront, and then there is a back-end loaded fund which is called B-shares which have contingent deferred sales charge. Investors that buy B-shares purchase it at NAV but they have to a declining surrender charge if they sell shares within 4 or 5 years.

No-load funds do not have a sales charge and all of the purchase goes to buy shares it is for investors who are comfortable doing their own investment research, investor is responsible for all the funds they pick and how they perform, back end loaded or B-shares are not a no-load fund.

4. Use of Funds- Commercial banks use the proceeds to provide credit to firms, individuals and government agencies, investors who wish to invest funds in a form of a deposit, then the funds are used to loan to firms or personal loans to individuals and to purchase debt securities issued by firms or government agencies.

Savings institutions are important intermediaries they accept deposits from

individuals and use most of the deposited funs to provide mortgage loans to

people. They serve intermediaries between investors and firms by lending to .these firms.

5. Risk of Treasury bond funds- There are still risk when purchasing a mutual fund that contains only treasury bonds. Those risks are interest rate risk, credit risk, prepayment