Chapter 12 In-Class Notes

Background on Mutual Funds Advantages of Investing in Mutual Funds Diversified portfolio Professional management Marketability Simplified record keeping Disadvantages of Investing in Mutual Funds Management fees Lack of control Portfolio manager performance may be poor Liquidity may be low Open-end vs. closed-end funds Front-end load vs. back-end load vs. no-load Management expense ratio (MER) 12-2Copyright © 2009 Pearson Education Canada

Types of Mutual Funds EquityBond GrowthCanadian Small-cap and mid-capHigh-yield DividendIndex Balanced growth and incomeGlobal Sector Index International Ethical 12-3Copyright © 2009 Pearson Education Canada

Return and Risk of a Mutual Fund Return Distributions: interest income, dividends, capital gain Redemptions: capital gain Risk All equity mutual funds are influenced by general stock market conditions All bond mutual funds are influenced by interest rate risk Most bond mutual funds are influenced by default risk 12-4Copyright © 2009 Pearson Education Canada

Deciding Among Mutual Funds What is the minimum initial investment? What is the investment objective? What are the key characteristics of the investment company? Past performance, MERs, and other fees Review the simplified prospectus Investment objective Investment strategy 12-5Copyright © 2009 Pearson Education Canada

Segregated Funds Principal protection Usually matures 10 years after the date of purchase Deposit guarantee of between 75 and 100 percent Death benefit guarantee Usually matures at death of policy owner Deposit guarantee of between 75 and 100 percent Creditor protection Money invested in a segregated fund is an asset of the insurance company, not of the policy owner Management expense ratio Can be double that of its mutual fund equivalent 12-6Copyright © 2009 Pearson Education Canada