Question

The survey data shown as Figure 10 in Chapter 27 indicate that most economists invest using low-cost index funds. Index funds invest in the whole stock market (or at least a large chunk of it). The “low-cost” part matters because even fees that seem small can have a big cumulative effect on your returns over time. Actively managed funds have higher fees. Index funds are not managed so they will have lower fees.

Mutual funds typically come with two types of fees:

• Font-end Load – sales fees investor pays at time of purchase
• Annual fees -- management fees, 12b-1 (distribution) fees, and other expenses

The table below presents information for four hypothetical mutual funds.

	Fund O	Fund A	Fund B	Fund C
Return	8%	8%	8%	8%
Load	0	0	0	8%
Fees	0	0.50%	1.50%	1%

Return, load, and fees are expressed as a percentage of total assets.

• Return represents the average annual return on the portfolio.
• Load represents the front-end fee that must be paid when making the initial investment.
• Fees represent the management and distribution fees that are charged on an annual basis. It’s helpful to think about annual fees as reducing the annual return by the percentage rate of the fee.

Suppose you have $10,000 to invest today (time = 0). Create a spreadsheet to model the growth in your investment over 30 years for each of the funds.

Post the following in the discussion:

1. What are the total fees paid for each fund over the full 30 years?
2. Explain how you would make the choice between Fund B and Fund C. That is, how should you think about the trade-off between higher annual fees and lower fees with a load?
3. How do you think this information may change your investing behavior in the future?

After you post your answers, you will need to comment on at least one other post. See if you can help your classmates who are having trouble with the calculations.

Please see the rubric for details on how you will be assessed for this activity. Remember that doing the minimum will give you a passing grade. Earning a higher grade requires more than the minimum.

Answer 1

Lets put a tabular format for our portfolio. We can have fund name # of units puepurch NAV(net asset value, the cost of unit for your when you bought it) purchase date, total value @purchase - units * purchase NAV - current NAV , profit/loss amount and profit/loss percentage as our table coloumns depending on what or how you want to track your Mutual funds portfolio. When you finish creating the table.

We will use power query to automatically fetch the FUNDS. Finally based on the fund name we fetch the Net asset value.

To start you can see the spreadsheets, when you go to the spreadsheet you will see a sample portfolio. But it will give you a clear picture on how it works. You Will make a copy of it so that you can edit it and save your own portfolio.

When it comes to saving or investment most of the people would for fixed deposits or gold as they offer stable returns. But professional management, liquidity and diversification, among others, make Mutual fund a good alternative to such traditional methods, and theyp provide superior returns over the long term. The first step to invest in mutual fund schemes is to build a portfolio. While doing so, investors need to understand their goals .and evacuate risk appetite. Couple of warnings that are issued. Mutual funds investment are subject to market risks and past performance doesn't guarantee future returns.

The most important part is to understand investment goals and performances. Goals should be smart specific, measurable, achievable, realistic and time bound.

What I feel is that you should be good at what you do. So if I'm a good at technology then I should be working in an IT company, if Im a good chef I should be good at cooking. But if you want to invest, I think you need to have a professional manager who needs to handle your investment and for that, along with the diversification, liquidity, transperanct, put all the points together, then the answer is only mutual funds.

If you want your money to be professionally managed which will be transparent, they will print fact sheets every month and will have liquidity, you can invest as low as 500 all of this put together in a tax efficient structure with pooling of money, I think that is mutual funds.