Question

1. Define four different classes of mutual funds? Discuss the characteristics and risks of each of the four classes you defined.

2. Discuss the different ways an investor can realize a return on a mutual fund investment

Answer 1

1. Four types of of mutual funds are as follows-

A. Growth mutual fund will be those types of mutual fund which will be investing into growing stocks and they will be investing in to high price to earning stocks and there will be a quick opportunity of making higher rate of return but there is a risk of losing a significant chunk of Return In case the economy is downgraded.

B. Value mutual fund are those Mutual Funds which will be investing into those stocks which are currently under valued according to the intrinsic valuation methods in respect to the market price. Benefits will be that these stocks are providing higher rate of return but there is a risk that these stocks will never recover due to their under evaluation and they continue to fall.

C. index funds will be passive funds which are mostly investing into the index and providing the market rate of return and risk of investing into such funds that invest or is not making any extra ordinary return.

D. Blend fund are generally a mix of growth fund as well as value fund and they will be investing into both type of securities risk related to blend fund is that it they are not properly categorised and they can significantly underperform.

2. different ways an investor can realise his rate of return on mutual fund investment is -

A. direct selling of his investment into the mutual funds in order to realise the gaines.

B. He can also transfer his stakes to another person in order to realise the gain.

C. Mutual Funds are also distributing their Dividend and gains which are attribute in form of capital gain.