Mutual Fund Surfing

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Mutual Fund Surfing
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Choosing a Mutual Fund

• Look at the objective of the fund.
• It should match your objective.
• Common types of funds
• Growth
• Balanced
• Index
• Sector
• International

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• Examine long-term return record.
• 5 year and 10 year annualized return
• Morningstar overall return rating
• Performance is compared to other MFs in the same
  broad investment class.
• High top 10, Above Average Next 22.5,
  Average Middle 35, Below Average Next 22.5,
  and Low Bottom 10
• High is best return rating, low is worst

4

• Look at risk.
• Morningstar Risk Rating
• Compares risk of fund to other MFs in its broad
  investment class
• Low top 10 percent (least risky), Below Average
  Next 22.5, Average Middle 35, Above Average
  Next 22.5, High Bottom 10
• Low is best risk rating, high is worst

5

• Examine the portfolio of the fund
• in stocks
• in most heavily weighted sector
• of stock holdings
• Turnover 200 new set of stocks every six
  months (100/200 .5 year). If turnover was
  20, it would take five years for the fund to
  have a complete new set of stocks (100/20 5)

6

• Look at the fees charged by the fund.
• Load charges (Load and no-load funds)
• Redemption fees
• 12 b-1 fees
• Expense ratio Expenses/assets under management
• Expense projections for 3, 5, 10 years

7

• Determine minimum initial investment and minimum
  subsequent investment.
• These need to fit your budget.

8

• Check current managers tenure.
• Need to determine if he (she) is responsible for
  the return record.

9

• Check services offered
• Reinvestment of dividends
• Automatic investment
• IRAs
• Fund switching (within a fund family)

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Net Asset Value

• Assets 100,000,000
• Liabilities 7,000,000
• Net assets 93,000,000
• 93,000,000/15,000,000 6.20 NAV
• NAV True worth of a share
• NAV is figured daily at close of the market.

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• No load funds can be bought at their NAV.
• Load funds are bought at NAV load.
• Example 6.20 NAV .25 load 6.45
• 6.45 called offer price
• Shares in a MF can be bought directly from the MF
  (and sold directly to the MF).

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Sources for MF Information

• Morningstar (www.morningstar.com) on the Web
• Noted for star ratings
• Overall star rating considers both risk and
  return.
• A historical rating
• Five Stars top 10
• Four Stars next 22.5
• Three Stars middle 35
• Two Stars next 22.5
• One Star bottom 10

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Non-Web Sources of Information on Mutual Funds

• Money
• Business Week
• Wall Street Journal