Question

1. A mutual fund may contain ___. (This is a multiple answer format question which means you should check all that apply...there may be more than one correct response).

    A. Common stocks from a variety of industries

B. Treasury bonds

C. International stocks

2. If you are not vested, none of your contributions, the company's matching contributions, or the returns from those contributions belong to you when you leave the company.

A. True

B. False

3. (3 pts) You are dealing with a mutual fund that has a 2% sales load and a 1% expense ratio. You plan to invest $1,000 today and $250 per month for 35 years. Assume the fund earns 8% before any fees. How much will you have in 35 years after paying all fees? SHOW YOUR WORK.

Answer 1

1. A mutual fund may contain common stocks, treasury bonds or international stocks. (Examples of funds in India)

Equity mutual funds invest a major portion of funds into common stocks, whereas balanced mutual fund allocates in hybrid of asset classes including stocks, bonds etc to reduce risk exposure across asset classes.

Example: Axis Blue Chip Fund (78.61% investment in Indian common stocks)

LIC MF Equity Hybrid Fund (69.68% in stocks, 21.13% Goverment bonds/securities & low risk securities)

Fixed Income funds focuses on investments that can generate a set rate of return like treasury bonds. As mentioned above, balanced mutual funds also reserve a certain portion to fixed income bonds in its portfolio.

Example: SBI Dynamic Bond Fund (82.1% investment in Government bonds/securities; 15.03% in low risk securities)

LIC MF Debt Hybrid Fund (16.05% in stocks, 73.77% in Government bonds/Securities & Low risk securities)

International or Global mutual funds allocate a major part of the portfolio into assets like international stocks located outside one's home country. International Mutual funds follow a 3 tier structure (fund of funds) where investors place their funds in feeder fund; feeder fund later invests in a master fund which then invests the fund in the market. However, Equity mutual funds also (based on the investment objective of the fund) invest a certain percentage in international stocks.

Example: Kotak Global Emerging Market Fund

Axis growth opportunities fund (Equity 68.78%, Foreign Equity 23.15%)