Glossary ! - Investment & Mutual Funds !

Mutual Fund—An investment company that buys a portfolio of securities selected by a professional investment adviser to meet a specified financial goal. Mutual fund investors buy shares in the fund that represent ownership in all the fund’s securities. A mutual fund stands ready to buy back its shares at their current net asset value, which is the total market value of the fund’s investment portfolio, minus its liabilities, divided by the number of shares outstanding. Most mutual funds continuously offer new shares to investors.

Annual and Semiannual Reports— Summaries that a mutual fund sends to its
shareholders that discuss the fund’s performance over a certain period and identify the
securities in the fund’s portfolio on a specific date.

Appreciation—An increase in an investment’s value.

Asked or Offering Price—(As seen in some mutual fund newspaper listings, see p. 32.)
The price at which a mutual fund’s shares can be purchased. The asked or offering
price includes the current net asset value per share plus any sales charge.

Assets—The current dollar value of the pool of money shareholders have invested in
a fund.

Automatic Reinvestment—A fund service giving shareholders the option to purchase
additional shares using dividends and capital gains distributions.

Average Portfolio Maturity—The average maturity of all the bonds in a bond fund’s
portfolio.

Bear Market—A period during which security prices in a particular market (such as
the stock market) are generally falling.

Bid or Sell Price—The price at which a mutual fund’s shares are redeemed, or
bought back, by the fund. The bid or redemption price is usually the current net
asset value per share.

Bond—A debt security, or IOU, issued by a company, municipality, or government
agency. A bond investor lends money to the issuer and, in exchange, the issuer promises
to repay the loan amount on a specified maturity date; the issuer usually pays the
bondholder periodic interest payments over the life of the loan.

Broker/Dealer (or Dealer )—A firm that buys and sells mutual fund shares and other
securities from and to investors.

Bull Market—A period during which security prices in a particular market (such as
the stock market) are generally rising.

Capital Gains Distribution—Profits distributed to shareholders resulting from the
sale of securities held in the fund’s portfolio.

Closed-end Fund—A type of investment company that has a fixed number of shares
which are publicly traded. The price of a closed-end fund share fluctuates based on
investor supply and demand. Closed-end funds are not required to redeem shares and
have managed portfolios.

Commission—A fee paid by an investor to a broker or other sales agent for investment
advice and assistance.

Compounding—Earnings on an investment’s earnings. Over time, compounding
can produce significant growth in the value of an investment.

Contingent Deferred Sales Charge (CDSC)—A fee imposed when shares are
redeemed (sold back to the fund) during the first few years of ownership.

Credit Risk—The possibility that a bond issuer may not be able to pay interest and
repay its debt.

Custodian—An organization, usually a bank, that holds the securities and other
assets of a mutual fund.

Depreciation—A decline in an investment’s value.

Diversification—The practice of investing broadly across a number of securities to
reduce risk.

Dollar -cost Averaging—The practice of investing a fixed amount of money at regular
intervals, regardless of whether the securities markets are declining or rising.

Exchange Privilege—A fund option enabling shareholders to transfer their
investments from one fund to another within the same fund family as their needs or
objectives change. Typically, fund companies allow exchanges several times a year for a
low or no fee.

Expense Ratio—A fund’s cost of doing business—disclosed in the prospectus—
expressed as a percent of its assets.

Face Value—The amount that a bond’s issuer must repay at the maturity date.

Family of Funds—A group of mutual funds, each typically with its own investment
objective, managed and distributed by the same company.

401(k) Plan—An employer-sponsored retirement plan that enables employees to
make tax-deferred contributions from their salaries to the plan.

403(b) Plan—An employer-sponsored retirement plan that enables employees of
universities, public schools, and non-profit organizations to make tax-deferred contributions
from their salaries to the plan.

457 Plan—An employer-sponsored retirement plan that enables employees of state
and local governments and other tax-exempt employers to make tax-deferred contributions
from their salaries to the plan.

Hedge Fund—A private investment pool for wealthy investors that, unlike a mutual
fund, is exempt from SEC regulation.

Income—Dividends, interest and/or shortterm capital gains paid to a mutual fund’s
shareholders. Income is earned on a fund’s investment portfolio after deducting operating
expenses.

Individual Retirement Account (IRA)— An investor-established, tax-deferred
account set up to hold and invest funds until retirement.

Inflation Risk—The risk that a portion of an investment’s return may be eliminated by
inflation.

Interest Rate Risk—The possibility that a bond’s or bond mutual fund’s value will
decrease due to rising interest rates.

Investment Adviser—An organization employed by a mutual fund to give professional
advice on the fund’s investments and asset management practices.

Investment Company—A corporation, trust, or partnership that invests pooled
shareholder dollars in securities appropriate to the organization’s objective. Mutual
funds, closed-end funds, and unit investment trusts are the three types of investment
companies.

Investment Objective—The goal that an investor and mutual fund pursue together (e.g., current income, long-term capital growth, etc.).

Issuer—The company, municipality, or government agency that issues a security, such as a stock, bond, or money market security.

Large-cap Stocks—Stocks of large-capitalization companies, which are generally considered
to be companies whose total outstanding shares are valued at $10 billion or more.

closed-end fund is an investment company whose shares are publicly traded like stocks. As a result, the price of a closed-end fund share fluctuates based on supply and demand. If the share price is more than the value of its assets, then the fund is trading at a premium; if the share price is less, then it is trading at a discount. The assets of a closed-end fund are managed by a professional or a group of professionals choosing investments such as stocks and bonds to match the fund’s objectives.

unit investment trust (UIT) is an investment company that buys a fixed portfolio of stocks or bonds. A UIT holds its securities until the trust’s termination date. When a trust is dissolved, proceeds from the securities are paid to shareholders. UITs have a fixed number of shares or “units” that are sold to investors in an initial public offering. If some shareholders redeem units, the UIT or its sponsor may purchase them and reoffer them to the public.

Net Asset Value (NAV)—The per-share value of a mutual fund, found by subtracting the fund’s liabilities from its assets and dividing by the number of shares outstanding.Mutual funds calculate their NAVs at least once daily.

No-load Fund—A mutual fund whose shares are sold without a sales commission and without a 12b-1 fee of more than .25 percent per year.

Open-end Investment Company—The legal name for a mutual fund, indicating that it stands ready to redeem (buy back) its shares from investors on any business day.

Operating Expenses—Business costs paid from a fund’s assets before earnings are distributed to shareholders. These include management fees and 12b-1 fees and other expenses.

Portfolio—A collection of securities owned by an individual or an institution (such as a mutual fund) that may include stocks, bonds, and money market securities.

Portfolio Turnover—A measure of the trading activity in a fund’s investment portfolio—
how often securities are bought and sold by a fund.

Prepayment Risk—The possibility that a bond owner will receive his or her principal investment back from the issuer prior to the bond’s maturity date.

Portfolio Turnover—A measure of the trading activity in a fund’s investment portfolio—
how often securities are bought and sold by a fund.

Liquidity—The ability to readily access invested money. Mutual funds are liquid because their shares can be redeemed for current value (which may be more or less than the original cost) on any business day.

Long-term Funds—A mutual fund industry designation for all funds other than money market funds. Long-term funds are broadly divided into equity (stock), bond, and hybrid funds.

Management Fee—The amount paid by a mutual fund to the investment adviser for its services.

Maturity—The date by which an issuer promises to repay the bond’s face value.

Prepayment Risk—The possibility that a bond owner will receive his or her principal investment back from the issuer prior to the bond’s maturity date.

Prospectus—The official document that describes a mutual fund to prospective investors. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services, and fees.

Quality—The creditworthiness of a bond issuer, which indicates the likelihood that it will be able to repay its debt.

Redeem—To cash in mutual fund shares by selling them back to the fund. Mutual fund shares may be redeemed on any business day. You will receive the current share price, called net asset value, minus any deferred sales charge or redemption fee.

Reinvestment Privilege—An option whereby mutual fund dividends and capital gains distributions automatically buy new fund shares.

Risk/Reward Tradeoff—The investment principle that an investment must offer higher potential returns as compensation for the likelihood of increased volatility.

Rollover—The shifting of an investor’s assets from one qualified retirement plan to another—due to changing jobs, for instance—without a tax penalty.

Sales Charge or Load—An amount charged for the sale of some fund shares, usually those sold by brokers or other sales professionals. By regulation, a mutual fund sales charge may not exceed 8.5 percent of an investment purchase. The charge may vary depending on the amount invested and the fund chosen. A sales charge or load is reflected in the asked or offering price

Series Fund—A group of different mutual funds, each with its own investment objective
and policies, that is structured as a single corporation or business trust.

Share Classes (e.g., Class A , Class B,etc.)—Represent ownership in the same fund, but charge different fees. This can enable shareholders to choose the type of fee structure that best suits their particular needs.

Shareholder—An investor who owns shares of a mutual fund or other company.

Short-term Funds—Another term for money market funds.

Small-cap Stocks—Stock of smallcapitalization companies, which are generally considered to be companies whose total outstanding shares are valued at less than $1.6 billion.

Spread—The difference between what you pay for a stock or bond and what the security dealer pays for it.

Statement of Additional Information (SAI) —The supplementary document to a
prospectus that contains more detailed information about a mutual fund; also known as “Part B” of the prospectus.

Stock—A share of ownership or equity in a corporation.

Total Return—A measure of a fund’s performance that encompasses all elements of
return: dividends, capital gains distributions, and changes in net asset value. Total
return is the change in value of an investment over a given period, assuming reinvestment
of any dividends and capital gains distributions, expressed as a percentage of the
initial investment.

Transfer Agent —The organization employed by a mutual fund to prepare and
maintain records relating to shareholder accounts.

12b-1 Fee—A mutual fund fee, named for the SEC rule that permits it, used to pay for
broker-dealer compensation and other distribution costs. If a fund has a 12b-1 fee, it
will be disclosed in the fee table of a fund’s prospectus.

Underwriter —The organization that sells a mutual fund’s shares to broker/dealers and investors.

Unit Investment Trust (UIT)—An investment company that buys and holds a fixed
number of shares until the trust’s termination date. When the trust is dissolved, proceeds
are paid to shareholders. A UIT has an unmanaged portfolio. Like a mutual
fund, shares of a UIT can be redeemed on any business day.

Withdrawal Plan —A fund service allowing shareholders to receive income or principal
payments from their fund account at regular intervals.

Yield —A measure of net income (dividends and interest) earned by the securities in the
fund’s portfolio less fund expenses during a specified period. A fund’s yield is expressed
as a percentage of the maximum offering price per share on a specified date.

Monye Market Mutual Funds !

A money market fund invests in a pool of short-term, interest-bearing securities.A money market instrument is a short-term IOU issued by the U.S. government,U.S. corporations, and state and local governments. Money market instruments have maturity dates of less than 13 months. These instruments are relatively stable because of their short maturities and high quality.

Money market funds are most appropriate for short-term investment and savings goals or in situations where you seek to preserve the value of your investment while still earning income. In general, money market funds are useful as part of a diversified personal financial program that includes long-term investments.

Money Market Fund Risks
The short-term nature of money market investments makes money market funds less volatile than any other type of fund. Money market funds seek to maintain a $1-per-share price to preserve your investment principal while generating dividend income. To help preserve the value of your principal investment, money market funds must meet stringent credit quality, maturity, and diversification standards. Most money market funds are required to invest at least 95 percent of their assets in U.S. Treasury issues and privately issued securities carrying

the highest credit rating by at least two of the five major credit rating agencies. A money market fund generally cannot invest in any security with a maturity greater than 397 days, nor can its average maturity exceed 90 days. All of these factors help minimize risk. However, money market funds do not guarantee that you will receive all your money back. Money market funds are not insured by the U.S. government. “Inflation risk”—that is, the risk your
investment return fails to keep pace with the inflation rate—is another concern if you
choose to invest in money market funds or any other short-term investments. See page
25 for a broader discussion of inflation risk.

Bond Mutual Funds !

Bond funds invest primarily in securities known as bonds. A bond is a type of security that resembles a loan. When a bond is purchased, money is lent to the company, municipality, or government agency that issued the bond. In exchange for the use of this money, the issuer promises to repay the amount loaned (the principal; also known as the face value of the bond) on a specific maturity date.

In addition, the issuer typically promises to make periodic interest payments over the life of the loan. A bond fund share represents ownership in a pool of bonds and other securities comprising the fund’s portfolio. Although there have been past exceptions, bond funds tend to be less volatile than stock funds and often produce regular income. For these reasons, investors often use bond funds to diversify, provide a stream of income, or invest for intermediate-term goals. Like stock funds, bond funds have risks and can make or lose money.


Types of Risks:

Interest Rate Risk: Think of the relationship between bond prices and interest rates as opposite
ends of a seesaw. When interest rates fall, a bond’s value usually rises. When interest rates
rise, a bond’s value usually falls. The longer a bond’s maturity, the more its price tends to
fluctuate as market interest rates change. However, while longer-term bonds tend to
fluctuate in value more than shorter-term bonds, they also tend to have higher yields
(see page 24) to compensate for this risk. Unlike a bond, a bond mutual fund does
not have a fixed maturity. It does, however, have an average portfolio maturity—the
average of all the maturity dates of the bonds in the fund’s portfolio. In general, the
longer a fund’s average portfolio maturity, the more sensitive the fund’s share price will
be to changes in interest rates and the more the fund’s shares will fluctuate in value.

Credit Risk Credit risk refers to the “creditworthiness” of the bond issuer and its expected ability to pay interest and to repay its debt. If a bond issuer is unable to repay principal or interest on time, the bond is said to be in default. A decline in an issuer’s credit rating, or creditworthiness, can cause a bond’s price to decline. Bond funds holding the bond could then experience a decline in their net asset value.

Prepayment Risk Prepayment risk is the possibility that a bond owner will receive his
or her principal investment back from the issuer prior to the bond’s maturity date. This
can happen when interest rates fall, giving the issuer an opportunity to borrow money
at a lower interest rate than the one currently being paid. (For example, a homeowner
who refinances a home mortgage to take advantage of decreasing interest rates has
prepaid the mortgage.) As a consequence, the bond’s owner will not receive any more
interest payments from the investment. This also forces any reinvestment to be made in a
market where prevailing interest rates are lower than when the initial investment was
made. If a bond fund held a bond that has been prepaid, the fund may have to reinvest
the money in a bond that will have a lower yield.

Are Tax-free Bond Funds Right for You?

With most bond funds, the income you receive is taxable as ordinary income. However, some funds invest in bonds whose interest payments are free from Government income tax, while other funds invest in bonds that are free from both gvt and state income tax. Tax-exempt funds may be subject to capital gains taxes.

The income tax benefit typically means that the income from these funds is lower than
that of comparable taxable funds. But if you compare the yields after taxes, a tax-free
fund may be a better choice, depending on your tax bracket.


>>>> Bond credit ratings represent the opinion of independent agencies on the likelihood that a
bond’s issuer will be able to make periodic interest payments and repay principal.

Stock Funds !

Stock funds invest primarily in stocks. A share of stock represents a unit of ownership in a company. If a company is successful, shareholders can profit in two ways: the stock may increase in value, or the company can pass its profits to shareholders in the form of dividends. If a company fails, a shareholder can lose the entire value of his or her shares; however, a shareholder is not liable for the debts of the company.

The upswings and downturns of the stock market affect stock funds. Despite a history of outperforming other types of securities, stocks sometimes lose money (see chart below). Sometimes these losses can be substantial and last for long periods. The recent S&P 500 annual returns of 20 and 30 percent are unprecedented, and cannot be counted on to continue in the future. The average rate of annual return from 1926 to 1999 is about 11 percent. Most experts expect stock market returns to revert to their historical range.

When you buy shares of a stock mutual fund, you essentially become a part owner of each of the securities in your fund’s portfolio. Stock investments have historically been a great source or ncreasing individual wealth, even though the stocks of the most successful companies may experience periodic declines in value. Over time, stocks historically have performed better than other investments in securities, such as bonds and money market instruments. Of course, there is no guarantee that this historical trend will be true in the future. That’s why stock funds are instead used as long-term investments.

Stock prices move up and down for a variety of reasons— some of them affecting the entire
market, others limited to particular industries or companies.

Lesson 2-- Fund ka Funda !

Different Fund Different Feature :

1). Stock mutual funds: invest primarily in shares of stock issued by companies.
2). Bond mutual funds: invest primarily in bonds.
3). Money market mutual funds: invest mainly in short-term securities issued by the government and its agencies, corporations, and state and local Governement.

Risk and Reward Positions for different funds.

Generally, risk and reward go hand in hand with mutual fund investments.





Why Invest in Mutual Funds?

Mutual funds make saving and investing simple, accessible, and affordable. The
advantages of mutual funds include professional management, diversification,
variety, liquidity, affordability, convenience, and ease of recordkeeping—as well
as strict government regulation and full disclosure.

Lesson 1-- What is Mutual Fund !

A mutual fund is a company that invests in a diversified portfolio of securities.
People who buy shares of a mutual fund are its owners or shareholders. Their
investments provide the money for a mutual fund to buy securities such as stocks
and bonds. A mutual fund can make money from its securities in two ways: a
security can pay dividends or interest to the fund, or a security can rise in value.
A fund can also lose money and drop in value.

Fund ka Funda !

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