mGinger - Make money
15 years ago
Thursday, September 4, 2008
Mutual Funds : Learn more about it
Open-end Funds
All mutual funds fall into one of two broad categories: open-end funds and closed-end funds. Most mutual funds are open-end. The reason why these funds are called "open-end" is because there is no limit to the number of new shares that they can issue. New and existing shareholders may add as much money to the fund as they want and the fund will simply issue new shares to them. Open-end funds also redeem, or buy back, shares from shareholders. In order to determine the value of a share in an open-end fund at any time, a number called the Net Asset Value (described below) is used. You purchase shares in open-end mutual funds from the mutual fund itself or one of its agents; they are not traded on exchanges.
Closed-end Funds
Closed-end funds behave more like stock than open-end funds; that is to say, closed-end funds issue a fixed number of shares to the public in an initial public offering, after which time shares in the fund are bought and sold on a stock exchange. Unlike open-end funds, closed-end funds are not obligated to issue new shares or redeem outstanding shares. The price of a share in a closed-end fund is determined entirely by market demand, so shares can either trade below their net asset value ("at a discount") or above it ("at a premium"). Since you must take into consideration not only the fund's net asset value but also the discount or premium at which the fund is trading, closed-end funds are considered to be more suitable for experienced investors. You can purchase shares in a closed-end fund through a broker, just as you would purchase a share of stock.
Net Asset Value (NAV)
Open-end mutual funds price their shares in terms of a Net Asset Value (NAV) (note that you can calculate NAV for a closed-end fund too, but it will not necessarily be the price at which you buy or sell closed-end shares). NAV is calculated by adding up the market value of all the fund's underlying securities, subtracting all of the fund's liabilities, and then dividing by the number of outstanding shares in the fund. The resulting NAV per share is the price at which shares in the fund are bought and sold (plus or minus any sales fees). Mutual funds only calculate their NAVs once per trading day, at the close of the trading session.
Public Offering Price (POP)
The public offering price (POP) is the price at which shares are sold to the public. For funds that don't charge a sales commission (or "load"), the POP is simply equal to the Net Asset Value (NAV). For a load fund, the POP is equal to the NAV plus the sales charge. As with the NAV, the POP will typically change on a day to day basis.
Dividends and Capital Gains Distributions
Mutual funds earn money on their investments through one of two ways: dividend income and capital appreciation. In other words, a mutual fund makes money on one of the fund's assets when that asset pays the mutual fund dividends or interest, or when the mutual fund sells the asset for more than what it initially paid (if it sells the asset for less than what it initially paid, then that is called a capital loss). The federal government mandates that all mutual funds distribute these dividends and capital gains to the fund's shareholders at least once per year. Most mutual funds choose to distribute their investment income on a quarterly, semi-annual or annual basis.
In order to determine which shareholders qualify for distribution payments, mutual funds specify a day during each distribution period that is known as the record day. If you own shares in a fund on or before the record day you qualify for a distribution. The day after the record day is known as the ex-dividend date. If you purchase shares on the ex-dividend date then the amount of the distribution is subtracted from the fund's net asset value (NAV) per share.
You should be aware that if you receive distributions from a mutual fund then you must pay taxes on them, regardless of how long you have owned shares in the fund and regardless of whether or not you received the distributions in the form of cash or in the form of new shares. In January of every year, mutual funds issue Form 1099-DIV to all of their shareholders as well as to the IRS in order to report income on distributions.
Mutual Fund Family
A mutual fund family is a group of mutual funds that is managed by the same company. It is usually easy to switch money between mutual funds that are part of the same family. Additionally, most fund families make monitoring multiple investments easier, and make tax time easier, by aggregating the information from the various funds for you.
Share Classes
Mutual funds shares are sometimes broken down into lettered "classes" that have different characteristics. Here's a brief rundown of some commonly used designations:
• A: Shares that have a front-end load.
• B: Shares that have a back-end load.
• Y: Shares for institutional investors; no front-end load.
• Z: Shares for employees of the mutual fund.
Dual-Purpose Fund
As with some stocks, certain closed-end funds distinguish between common shareholders and preferred shareholders -- these funds are called dual-purpose funds. As the name suggests, common shareholders receive all distributions from capital gains, while preferred shareholders receive all dividend and interest income. These funds have a set expiration date, at which time all preferred shares in the fund are redeemed, giving the common shareholders sole ownership of the fund. Those shareholders then decide whether to liquidate the fund and divide up the proceeds or to convert the fund into an open-end mutual fund.
All mutual funds fall into one of two broad categories: open-end funds and closed-end funds. Most mutual funds are open-end. The reason why these funds are called "open-end" is because there is no limit to the number of new shares that they can issue. New and existing shareholders may add as much money to the fund as they want and the fund will simply issue new shares to them. Open-end funds also redeem, or buy back, shares from shareholders. In order to determine the value of a share in an open-end fund at any time, a number called the Net Asset Value (described below) is used. You purchase shares in open-end mutual funds from the mutual fund itself or one of its agents; they are not traded on exchanges.
Closed-end Funds
Closed-end funds behave more like stock than open-end funds; that is to say, closed-end funds issue a fixed number of shares to the public in an initial public offering, after which time shares in the fund are bought and sold on a stock exchange. Unlike open-end funds, closed-end funds are not obligated to issue new shares or redeem outstanding shares. The price of a share in a closed-end fund is determined entirely by market demand, so shares can either trade below their net asset value ("at a discount") or above it ("at a premium"). Since you must take into consideration not only the fund's net asset value but also the discount or premium at which the fund is trading, closed-end funds are considered to be more suitable for experienced investors. You can purchase shares in a closed-end fund through a broker, just as you would purchase a share of stock.
Net Asset Value (NAV)
Open-end mutual funds price their shares in terms of a Net Asset Value (NAV) (note that you can calculate NAV for a closed-end fund too, but it will not necessarily be the price at which you buy or sell closed-end shares). NAV is calculated by adding up the market value of all the fund's underlying securities, subtracting all of the fund's liabilities, and then dividing by the number of outstanding shares in the fund. The resulting NAV per share is the price at which shares in the fund are bought and sold (plus or minus any sales fees). Mutual funds only calculate their NAVs once per trading day, at the close of the trading session.
Public Offering Price (POP)
The public offering price (POP) is the price at which shares are sold to the public. For funds that don't charge a sales commission (or "load"), the POP is simply equal to the Net Asset Value (NAV). For a load fund, the POP is equal to the NAV plus the sales charge. As with the NAV, the POP will typically change on a day to day basis.
Dividends and Capital Gains Distributions
Mutual funds earn money on their investments through one of two ways: dividend income and capital appreciation. In other words, a mutual fund makes money on one of the fund's assets when that asset pays the mutual fund dividends or interest, or when the mutual fund sells the asset for more than what it initially paid (if it sells the asset for less than what it initially paid, then that is called a capital loss). The federal government mandates that all mutual funds distribute these dividends and capital gains to the fund's shareholders at least once per year. Most mutual funds choose to distribute their investment income on a quarterly, semi-annual or annual basis.
In order to determine which shareholders qualify for distribution payments, mutual funds specify a day during each distribution period that is known as the record day. If you own shares in a fund on or before the record day you qualify for a distribution. The day after the record day is known as the ex-dividend date. If you purchase shares on the ex-dividend date then the amount of the distribution is subtracted from the fund's net asset value (NAV) per share.
You should be aware that if you receive distributions from a mutual fund then you must pay taxes on them, regardless of how long you have owned shares in the fund and regardless of whether or not you received the distributions in the form of cash or in the form of new shares. In January of every year, mutual funds issue Form 1099-DIV to all of their shareholders as well as to the IRS in order to report income on distributions.
Mutual Fund Family
A mutual fund family is a group of mutual funds that is managed by the same company. It is usually easy to switch money between mutual funds that are part of the same family. Additionally, most fund families make monitoring multiple investments easier, and make tax time easier, by aggregating the information from the various funds for you.
Share Classes
Mutual funds shares are sometimes broken down into lettered "classes" that have different characteristics. Here's a brief rundown of some commonly used designations:
• A: Shares that have a front-end load.
• B: Shares that have a back-end load.
• Y: Shares for institutional investors; no front-end load.
• Z: Shares for employees of the mutual fund.
Dual-Purpose Fund
As with some stocks, certain closed-end funds distinguish between common shareholders and preferred shareholders -- these funds are called dual-purpose funds. As the name suggests, common shareholders receive all distributions from capital gains, while preferred shareholders receive all dividend and interest income. These funds have a set expiration date, at which time all preferred shares in the fund are redeemed, giving the common shareholders sole ownership of the fund. Those shareholders then decide whether to liquidate the fund and divide up the proceeds or to convert the fund into an open-end mutual fund.
Tuesday, August 19, 2008
Closeup - Real Estate and Finance
Wealth creation involves setting and achieving one's financial goals by maintaining a disciplined mindset in the entire process. If any of these factors are missing in a financial plan, then an individual behaves like a rudder less ship in a stormy sea of finance. Sometimes when you are out of cash and you try to find out ways from where to borrown funds, we land up using credit cards for small amounts specially if we are shopping. And if we need a big amount we got for loans. I think this is the time when we have to really take a wise decision, people who are good in playing with credit cards have fun using it, but who don't land up in a big mess, like me.
And if nowadays people take loans at a very young age, they have a mindset that they will pay it off while working, but they don't realise that slowly they are getting into the vicious grip of debt.
Always when you use credit cards make sure that you pay it off within the no interest period to avoid any interest being charged and also try to make purchases in the begining of the interest free period so that you get maximum number of days to pay it back. Also whenever you take loans make sure that you verify the rate of interest, coz sometimes when you receive the documents, interest charge reflecting on the documents is different from what was promised to you.
Just the Basics
Where Do I Find the Money to Invest?
The first question for many people is "where do I get the money to invest?" There are plenty of stock mutual funds that allow you to invest with $500 or less. Use your next bonus at work, or your income tax refund, or put in some overtime for extra cash. If you just can't come up with $500 to start your portfolio, many funds will allow you to skip the initial lump sum investment if you sign up for automatic monthly withdrawals of $25 to $50 from your checking account.
How Do I Choose an Investment?
You're ready for some long-term investments. How do you choose? The first step is to know what your goals are. Are you saving for a house? A college education? Retirement? The type of investment you choose will depend on the amount of time available before you need the money. Stocks are considered long-term investments, and it's best to plan on holding stocks or stock mutual funds for five years or longer. If you need the money sooner than this, you may reduce your return by cashing in when the stock's value is down.
How Do I Determine My Risk Tolerance?
Next, you need to know your risk tolerance. If you hide your money under your mattress because you don't trust the bank, then you're probably not going to feel comfortable investing in volatile technology stocks. CNBC's Investment Risk Test can help you determine what level of risk you can tolerate.
How Do I Choose an Investment?
How do you decide where to put your money? Most experts recommend spreading your money over several different types of investments to reduce risk, because typically one type of investment does well when another doesn't. For example, usually when returns on stocks and stock mutual funds are high, returns on bonds are low, and vice versa. By having money in both types of funds, you're more likely to get a decent combined return if one category takes a downturn. Your asset allocation should be tailored to your risk tolerance and the number of years before you'll need to withdraw the money from your investments.
For beginning investors, I recommend stock mutual funds instead of stocks in individual companies. Why? It's all about risk. A well-chosen stock mutual fund is less risky than an individual stock because mutual funds invest in many companies, thus spreading out the risk. If one company does poorly, the fund as a whole may still have a good return. If you buy stock in one company and the company does poorly, you lose money.
Real estate, like a business, is a great form of investing, but it takes a lot of work and time on your part. Especially if, to begin with, your resources are limited. But that's okay because you're going to build your wealth one brick at a time.
If you are seriously considering investing in real estate property, it means essentially that you will need:
Investment capital, or a legitimate means of attaining some without putting yourself in debt.
A good knowledge of the real estate market and the neighborhood in which you are looking to buy property.
Good management, people and negotiating skills
The ability to do repair work or access to people who can do it for you.
The name and number of a property inspector or engineer.
Identify Theft
How Can I Protect Myself From Identity Theft?
While you may not be able to prevent this from occurring, there are actions that you can take to reduce your risk:
Shred all unwanted materials containing sensitive personal information, such as bank statements, credit card receipts, etc.
Secure personal information in your home, especially if you have roommates or are having service performed in your home.
Do NOT give out personal information over the phone unless you are sure you know to whom you are speaking. Be wary of promotional scams where you are asked to provide your personal information.
Deposit outgoing mail in post office collection boxes, rather than your unsecured personal mailbox.
Do NOT carry your Social Security card. Keep it in a secure place. Do NOT provide your Social Security number unless absolutely necessary.
Pay attention to your billing cycles and follow up with creditors if you haven't received your statements.
Review your credit report annually. Contact creditors and the credit reporting agencies immediately if you notice anything unusual (e.g., new accounts you didn't open or inquiries you don't recognize).
Choosing the Right Lender and the Right Loan
When you are looking for business financing, the need may be so immediate that you are tempted to jump at the first offer, like a pre-qualified line of credit offer that arrives in your mailbox. But lenders and loans vary considerably and finding the best financing for your business involves more than just taking what comes along or comparing a few interest rates.
Evaluating lending sources
Who you get a loan from can be just as important a consideration as what kind of loan you get. Consider these issues when you’re assessing different lending sources:
· Accessibility: You may be able to find a loan on a toll-free hotline, through a Web site, or with a business credit card, but the convenience could cost you through higher upfront charges or a higher interest rate. And who will you talk with after the ink is dry and a problem or additional need comes up?
· Wide range of capabilities: Your financing needs may be simple and relatively easy to satisfy now, but in the future you could need more sophisticated financing services for challenges like a major expansion or change in direction.
· Sizeable resources: A successful company can grow more rapidly than you expect, and the need for financing support will expand with the business. You can’t afford to be limited by your lender’s size, lending limitations or lack of knowledge about your business.
· Balanced credit decisions: You’ll want a lender who can take into account your total picture, including all of your business’s assets and potential. A lender with an in-depth understanding of your business can look past temporary aberrations to make informed decisions.
· Commitment: The movement of interest rates and the relative health of market sectors can make lenders eager to offer cash one moment and reluctant the next. You want a lender committed to supporting the small- to midsize business market, regardless of the fluctuating economic climate.
Gauging loan flexibility
It is also important for your lender to have enough flexibility to adapt your credit terms to your business’s individual circumstances. You don’t have to settle for a one-size-fits-all program that, in the long run, could hinder your progress. Your financing program should accommodate the amortization terms, prepayment and reborrowing conditions, rates, range of usage and loan configurations that fit your needs.
For example, a conventional term loan may be appropriate for your medium-to-long-term credit needs, such as financing an equipment purchase or real estate transaction. However, what if your company has periodic high cash balances? Could you use these to prepay your loan and reduce interest costs? If you prepay your balance, could you reborrow those funds to finance other needs as they arise? Not all companies have the same cash flow profiles and not all need the same loan features.
By taking the time to assess your company’s situation and evaluating the lending options available to you along with the characteristics of the lender, it may be possible to choose a loan that’s flexible enough to meet your current and evolving needs.
Source : Merill Lynch
And if nowadays people take loans at a very young age, they have a mindset that they will pay it off while working, but they don't realise that slowly they are getting into the vicious grip of debt.
Always when you use credit cards make sure that you pay it off within the no interest period to avoid any interest being charged and also try to make purchases in the begining of the interest free period so that you get maximum number of days to pay it back. Also whenever you take loans make sure that you verify the rate of interest, coz sometimes when you receive the documents, interest charge reflecting on the documents is different from what was promised to you.
Just the Basics
Where Do I Find the Money to Invest?
The first question for many people is "where do I get the money to invest?" There are plenty of stock mutual funds that allow you to invest with $500 or less. Use your next bonus at work, or your income tax refund, or put in some overtime for extra cash. If you just can't come up with $500 to start your portfolio, many funds will allow you to skip the initial lump sum investment if you sign up for automatic monthly withdrawals of $25 to $50 from your checking account.
How Do I Choose an Investment?
You're ready for some long-term investments. How do you choose? The first step is to know what your goals are. Are you saving for a house? A college education? Retirement? The type of investment you choose will depend on the amount of time available before you need the money. Stocks are considered long-term investments, and it's best to plan on holding stocks or stock mutual funds for five years or longer. If you need the money sooner than this, you may reduce your return by cashing in when the stock's value is down.
How Do I Determine My Risk Tolerance?
Next, you need to know your risk tolerance. If you hide your money under your mattress because you don't trust the bank, then you're probably not going to feel comfortable investing in volatile technology stocks. CNBC's Investment Risk Test can help you determine what level of risk you can tolerate.
How Do I Choose an Investment?
How do you decide where to put your money? Most experts recommend spreading your money over several different types of investments to reduce risk, because typically one type of investment does well when another doesn't. For example, usually when returns on stocks and stock mutual funds are high, returns on bonds are low, and vice versa. By having money in both types of funds, you're more likely to get a decent combined return if one category takes a downturn. Your asset allocation should be tailored to your risk tolerance and the number of years before you'll need to withdraw the money from your investments.
For beginning investors, I recommend stock mutual funds instead of stocks in individual companies. Why? It's all about risk. A well-chosen stock mutual fund is less risky than an individual stock because mutual funds invest in many companies, thus spreading out the risk. If one company does poorly, the fund as a whole may still have a good return. If you buy stock in one company and the company does poorly, you lose money.
Real estate, like a business, is a great form of investing, but it takes a lot of work and time on your part. Especially if, to begin with, your resources are limited. But that's okay because you're going to build your wealth one brick at a time.
If you are seriously considering investing in real estate property, it means essentially that you will need:
Investment capital, or a legitimate means of attaining some without putting yourself in debt.
A good knowledge of the real estate market and the neighborhood in which you are looking to buy property.
Good management, people and negotiating skills
The ability to do repair work or access to people who can do it for you.
The name and number of a property inspector or engineer.
Identify Theft
How Can I Protect Myself From Identity Theft?
While you may not be able to prevent this from occurring, there are actions that you can take to reduce your risk:
Shred all unwanted materials containing sensitive personal information, such as bank statements, credit card receipts, etc.
Secure personal information in your home, especially if you have roommates or are having service performed in your home.
Do NOT give out personal information over the phone unless you are sure you know to whom you are speaking. Be wary of promotional scams where you are asked to provide your personal information.
Deposit outgoing mail in post office collection boxes, rather than your unsecured personal mailbox.
Do NOT carry your Social Security card. Keep it in a secure place. Do NOT provide your Social Security number unless absolutely necessary.
Pay attention to your billing cycles and follow up with creditors if you haven't received your statements.
Review your credit report annually. Contact creditors and the credit reporting agencies immediately if you notice anything unusual (e.g., new accounts you didn't open or inquiries you don't recognize).
Choosing the Right Lender and the Right Loan
When you are looking for business financing, the need may be so immediate that you are tempted to jump at the first offer, like a pre-qualified line of credit offer that arrives in your mailbox. But lenders and loans vary considerably and finding the best financing for your business involves more than just taking what comes along or comparing a few interest rates.
Evaluating lending sources
Who you get a loan from can be just as important a consideration as what kind of loan you get. Consider these issues when you’re assessing different lending sources:
· Accessibility: You may be able to find a loan on a toll-free hotline, through a Web site, or with a business credit card, but the convenience could cost you through higher upfront charges or a higher interest rate. And who will you talk with after the ink is dry and a problem or additional need comes up?
· Wide range of capabilities: Your financing needs may be simple and relatively easy to satisfy now, but in the future you could need more sophisticated financing services for challenges like a major expansion or change in direction.
· Sizeable resources: A successful company can grow more rapidly than you expect, and the need for financing support will expand with the business. You can’t afford to be limited by your lender’s size, lending limitations or lack of knowledge about your business.
· Balanced credit decisions: You’ll want a lender who can take into account your total picture, including all of your business’s assets and potential. A lender with an in-depth understanding of your business can look past temporary aberrations to make informed decisions.
· Commitment: The movement of interest rates and the relative health of market sectors can make lenders eager to offer cash one moment and reluctant the next. You want a lender committed to supporting the small- to midsize business market, regardless of the fluctuating economic climate.
Gauging loan flexibility
It is also important for your lender to have enough flexibility to adapt your credit terms to your business’s individual circumstances. You don’t have to settle for a one-size-fits-all program that, in the long run, could hinder your progress. Your financing program should accommodate the amortization terms, prepayment and reborrowing conditions, rates, range of usage and loan configurations that fit your needs.
For example, a conventional term loan may be appropriate for your medium-to-long-term credit needs, such as financing an equipment purchase or real estate transaction. However, what if your company has periodic high cash balances? Could you use these to prepay your loan and reduce interest costs? If you prepay your balance, could you reborrow those funds to finance other needs as they arise? Not all companies have the same cash flow profiles and not all need the same loan features.
By taking the time to assess your company’s situation and evaluating the lending options available to you along with the characteristics of the lender, it may be possible to choose a loan that’s flexible enough to meet your current and evolving needs.
Source : Merill Lynch
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