Marc Lafond, MBA
May 5, 2013
There are many different people that can be considered investors. With so many different types of investors, it is only natural that there be a variety of types of mutual funds to invest in. “At last count there were more than 10,000 mutual funds in North America” meaning there “are more mutual funds than stocks” (“Mutual Funds,” n.d.). For this paper, we will focus on five types of mutual funds: Equity, Index, Global/International, Sector and Balanced. Each of these mutual funds can be “Load” or “No-Load” and have a variety of expenses that can be passed on to the investor. “Load denotes either a fund’s maximum initial or deferred sales charge” (“Load,” n.d.). No Load “refers to a mutual fund that typically does not charge a fee for buying or selling its shares” (“No Load,” n.d.). Some of the expenses that are incurred by the investor are redemption fees, small balance fees, distribution fees and service fees to name a few. These fees are expressed as an expense ratio. Both the expenses and whether or not a fund is a no load or a load fund are very important when choosing a fund to invest in.
Equity Funds are “a mutual fund that invests principally in stocks” and “can be actively or passively (index fund) managed” (“Equity,” n.d.). Also known as a "stock fund,” Equity Funds are the largest category of mutual funds (“Mutual Funds,” n.d.). Equity Funds have a general objective of “long-term capital growth with some income” (“Mutual Funds,” n.d.).
An example of an Equity Fund is the Fidelity Select Utilities (FSUTX). This is a fund that invests in utilities. The top five companies in which this fund has holdings are as follows: Duke Energy Corp., American Electric Power Company Inc., PG & E Corp., Sempra Energy, and Edison International (“FSUTX,” n.d.).
FSUTX is a no load fund with an expense ratio of 0.83%. It has had a positive 10 year average of 13.95% with a high of 23.16% in year one and a low of 4.53% in year five. This can be seen in the chart below.
With a ten year average of 11.40%, an investment of $1,000 per year for 25 years in the FSUTX would provide a portfolio return of 8.72% or $121,612. Index Funds are a “type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500)” (“Index,” n.d.). According to Investopedia.com, “an index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover” (“Index,” n.d.). The obvious advantage of “passive” investing such as an index fund is a lower management expense ratio (“Index,” n.d.). An example of an Index Fund is the Vanguard 500 Index Fund (VFINX). This is a fund that invests in “500 of the largest U.S. companies, which span many different industries and account for about three-fourths of the U.S. stock market’s value” (“Vanguard,” n.d.). The top five companies in which this fund has holdings are as follows: Apple Inc., Exxon Mobile Corp., General Electric Company, Chevron Corp., and Johnson & Johnson (“Vanguard,” n.d.). VFINX is a no load fund with a 0.17% expense ratio. VFINX has had a positive 10 year average of 10.11% with a high of 13.80% in year one and a low of 5.72% in year five. This can be seen in the chart below.
With a ten year average of 8.42%, an investment of $1,000 per year for 25 years in the VFINX would provide a portfolio return of 6.50% or $77,747. Global and International Funds are nearly the same however people often confuse them. A Global Fund “includes the entire world, whereas an international/foreign fund includes the entire world except for companies in the investor's home country” (“Global,” n.d.). They are both a type of “closed-end fund or exchange-traded fund that can invest in companies located anywhere in the world”, the difference becomes whether...
References: Balanced Fund Definition | Investopedia. (n.d.). Retrieved May 5, 2013, from http://www.investopedia.com/terms/b/balancedfund.asp
Equity Fund Definition | Investopedia
FSUTX Summary - Select Utilities Portfolio | Fidelity Investments. (2013, May 4). Retrieved May 4, 2013, from https://fundresearch.fidelity.com/mutual-funds/summary/316390509
Global Fund Definition | Investopedia
IBALX - Summary of TRANSAMERICAMULTI MANAGED BALANC - Zacks.com. (n.d.). Retrieved May 4, 2013, from http://www.zacks.com/funds/mutual-fund/quote/IBALX
Index Fund Definition | Investopedia
Load. (n.d.). Retrieved May 5, 2013, from http://www.morningstar.com/InvGlossary/load_definition_what_is.aspx
Mutual Funds: Different Types Of Funds | Investopedia
No Load. (n.d.). Retrieved May 5, 2013, from http://www.morningstar.com/InvGlossary/no_load_definition_what_is.aspx
Sector Fund Definition | Investopedia. (n.d.). Retrieved May 5, 2013, from http://www.investopedia.com/terms/s/sectorfund.asp
USAGX - Summary of USAA PRECIOUS METALS AND MINERAL - Zacks.com
Vanguard - Vanguard 500 Index Fund Investor Shares. (n.d.). Retrieved May 4, 2013, from https://personal.vanguard.com/us/FundsSnapshot?FundId=0040&FundIntExt=INT
Please join StudyMode to read the full document