Question

Normally, capital gains earned in the mutual fund during the year are paid out to the investor as capital gains, at the end of the year.

REQUIRED:

1. What happens in a year in which the mutual fund suffers net capital losses.
2. What happens, if anything, to the Net Asset Value of a mutual fund after it pays out to investors all of the income it earned during the year.
3. What information in the Fund Facts document helps investors compare management fees among different mutual funds.   
4. Explain how a “bell curve” diagram helps investors to measure a stock’s price volatility.

Answer 1

A. WHAT HAPPENS WHEN MUTUAL FUNDS SUFFERS NET CAPITAL LOSSES

Ans. When mutual funds suffer net capital losses, they do not pass their net capital losses to the investor, and carry the losses forward on their books, just like an unrealized loss.

B. What happens, if anything, to the Net Asset Value of a mutual fund after it pays out to investors all the income it earned during the year.

Ans. Mutual funds are nothing, but just a portfolio of investors, majorly equity which is handled by a group of professional portfolio investors. Hence, if anything happens to the Net Asset value of a mutual fund, is borne by the current investors and those who have been added as the new investors to the fund. Hence, technically what happens with an equity investor happens with the mutual fund investors

C. What information in the Fund Facts document helps investors compare management fees among different mutual funds.

Ans. Following Ratio as part of the Fund Facts document provides such information:-

a. Fund Management Expense ratio

b. Trade expense ratio

D. Explain how a “bell curve” diagram helps investors to measure a stock’s price volatility.

Ans. The left of the curve shows scores that fall below the average and the right side shows scores that fall above the average. Greater the difference is from the average (either at right or left), greater is the volatility.