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FRUITAL INVESTMENT GROUP AND WEALTH MANAGEMENT -
Mutual Funds and Exchange-Traded Funds (ETFs) – A Guide for Investors.

American investors often turn to mutual funds and exchange-traded funds (ETFs) to save for retirement and other financial goals sometimes without knowing it.. Excellent Stuffs To Learn Right Here...

How Mutual Funds And ETFs Can Provide Returns to Investors?

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 ''Which Share Class is Best - A, B, or C?
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 ''Things That Could Reduce Mutual Funds’ and ETFs’ Returns''
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''Investors can make money from their investments in three ways:
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 How Mutual Funds Work?
How ETFs Work?

Although mutual funds and exchange-traded funds have similarities, they have differences that may make one option preferable for any particular investor.

 This article explains the basics of mutual fund and ETF investing, how each investment option works..

 ''Get the facts on mutual funds and decide if one is right for you''
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Key Points to Remember...

    Mutual funds and ETFs are not guaranteed or insured by the FDIC or any other government agency—even if you buy through a bank and the fund carries the bank’s name.  You can lose money investing in mutual funds or ETFs.

    Past performance is not a reliable indicator of future performance, so don’t be dazzled by last year’s high returns.  But past performance can help you assess a fund’s volatility over time.

    All mutual funds and ETFs have costs that lower your investment returns.  Shop around and compare fees.

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How Mutual Funds Work?

A mutual fund is an SEC-registered open-end investment company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments.

 The combined securities and assets the mutual fund owns are known as its portfolio, which is managed by an SEC-registered investment adviser.  Each mutual fund share represents an investor’s proportionate ownership of the mutual fund’s portfolio and the income the portfolio generates.

Investors in mutual funds buy their shares from, and sell/redeem theirshares to, the mutual funds themselves.  Mutual fund shares are typically purchased from the fund directly or through investment professionals like brokers.

 Mutual funds are required by law to price their shares each business day and they typically do so after the major U.S. exchanges close.  This price—the per-share value of the mutual fund’s assets minus its liabilities—is called the NAV or net asset value.

 Mutual funds must sell and redeem their shares at the NAV that is

calculated after the investor places a purchase or redemption order. 

This means that, when an investor places a purchase order for mutual fund shares during the day, the investor won’t know what the purchase price is until the next NAV is calculated.

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Remember that, There are three basic types of investment companies:

    Open-end investment companies or open-end funds—which sell shares on a continuous basis, purchased from, and redeemed by, the fund (or through a broker for the fund);
 

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    Closed-end investment companies or closed-end funds—
Which sell a fixed number of shares at one time (in an initial public offering) that later trade on a secondary market; and

    Unit Investment Trusts (UITs)—

Which make a one-time public offering of only a specific, fixed number of redeemable securities called units and which will terminate and dissolve on a date that is specified at the time the UIT is created.

Mutual funds are open-end funds.  ETFs are generally structured as open-end funds, but can also be structured as UITs.

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Exchanged Traded Funds - How ETFs Work?

Like mutual funds, ETFs are SEC-registered investment companies that offer investors a way to pool their money in a fund that makes investments in stocks, bonds, other assets or some combination of these investments and, in return, to receive an interest in that investment pool.

Unlike mutual funds, however, ETFs do not sell individual shares directly to, or redeem their individual shares directly from, retail investors.  Instead, ETF shares are traded throughout the day on national stock exchanges and at market prices that may or may not be the same as the NAV of the shares.  

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ETF's sponsors enter into contractual relationships with one or more Authorized Participants —
Financial institutions which are typically large broker-dealers.  Typically, only Authorized Participants purchase and redeem shares directly from the ETF.  In addition, they can do so only in large blocks (e.g., 50,000 ETF shares) commonly called creation units, and they typically “pay” for the creation units in an in-kind exchange with a group or basket of securities and other assets that generally mirrors the ETF’s portfolio. 

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Once an Authorized Participant receives the block of ETF shares, the Authorized Participant may sell the ETF shares in the secondary market to investors.  An ETF share is trading at a premium when its market price is higher than the value of its underlying holdings. 
 

 An ETF share is trading at a discount when its market price is lower than the value of its underlying holdings.  A history of the end-of-day premiums and discounts that an ETF experiences—its NAV per share compared to its closing market price per share —can usually be found on the website of the ETF or its sponsor.  Like a mutual fund, an ETF must calculate its NAV at least once every day.

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Exchanged Traded Fund...

ETFs are just one type of investment within a broader category of financial products called exchange-traded products (ETPs).  ETPs constitute a diverse class of financial products that seek to provide investors with exposure to financial instruments, financial benchmarks, or investment strategies across a wide range of asset classes. 

ETP trading occurs on national securities exchanges and other secondary markets, making ETPs widely available to market participants including individual investors.

Other types of ETPs include exchange-traded commodity funds and exchange-traded notes (ETNs).  Exchange-traded commodity funds are structured as trusts or partnerships that physically hold a precious metal or that hold a portfolio of futures or other derivatives contracts on certain commodities or currencies.

 ETNs are secured debt obligations of financial institutions that trade on a securities exchange. 

ETN payment terms are linked to the performance of a reference index or benchmark, representing the ETN’s investment objective.

 ETNs are complex, involve many risks for interested investors, and can result in the loss of the entire investment.

This brochure discusses only ETFs that are registered as open-end investment companies or unit investment trusts under the Investment Company Act of 1940.  It does not address other types of ETPs, such as exchange-traded commodity funds or ETNs.

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Common Features of Mutual Funds and ETFs

Some common features of mutual funds and ETFs are described

below.  Whether any particular feature is an advantage or disadvantage for you will depend on your unique circumstances—always be sure that the investment you are considering has the features that are important to you.

    Professional Management...

 Most funds and ETFs are managed by investment advisers who are registered with the SEC.

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    Diversification...

 Spreading investments across a wide range of companies or industry sectors can help lower risk if a company or sector fails.  Many investors find it less expensive to achieve such diversification through ownership of certain mutual funds or certain ETFs than through ownership of individual stocks or bonds.

    Low Minimum Investment... 

Some mutual funds accommodate investors who don’t have a lot of money to invest by setting relatively low dollar amounts for the initial purchase, subsequent monthly purchases, or both.  Similarly, ETF shares can often be purchased on the market for relatively low dollar amounts.

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    Liquidity and Trading Convenience. ....

 Mutual fund investors can readily redeem their shares at the next calculated NAV—minus any fees and charges assessed on redemption—on any business day.

 Mutual funds must send investors payment for the shares within seven days, but many funds provide payment sooner.  ETF investors can trade their shares on the market at any time the market is open at the market price—minus any fees and charges incurred at the time of sale.  ETF and mutual fund shares traded through a broker are required to settle in three business days.

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    Costs Despite Negative Returns... 

Investors in mutual funds must pay sales charges, annual fees, management fees and other expenses, regardless of how the mutual fund performs.

 Investors may also have to pay taxes on any capital gains distribution they receive.  Investors in ETFs must pay brokerage commissions, annual fees, management fees and other expenses, regardless of how the ETF performs. 

ETF investors may also have to pay taxes on any capital gains distributions; however, because of the structure of certain ETFs that 

redeem proceeds in kind, taxes on ETF investments have historically been lower than those for mutual fund investments. 

 It is important to note that the tax efficiency of ETFs is not relevant if an investor holds the mutual fund or ETF investment in a tax-advantaged account, such as an IRA or a 401(k).

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    Lack of Control...

  Investors in both mutual funds and ETFs cannot directly influence which securities are included in the funds’ portfolios.

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Before Investing in Mutual Funds or ETFs:

    Determine your financial goals and risk tolerance.  When it comes to investing in mutual funds and ETFs, investors have thousands of choices. 

Before you invest in any mutual fund or ETF, you must decide whether the investment strategy and risks are a good fit for you. 

You should also consider more generally whether the unique style of investing of the mutual fund’s or ETF’s sponsor is a good fit for you.

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Beware of risk.  All investments carry some level of risk.

 An investor can lose some or all of the money he or she invests—the principal—because securities held by a fund go up and down in value.  Dividend payments may also fluctuate as market conditions change.  Mutual funds and ETFs have different risks and rewards.

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    Bond Funds...

Bond funds invest primarily in bonds or other types of debt securities. They generally have higher risks than money market funds, largely because they typically pursue strategies aimed at producing higher yields.  Unlike money market funds.

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    Stock Funds...

Stock funds invest primarily in stocks, which are also known as equities.  Although a stock fund’s value can rise and fall quickly (and dramatically) over the short term, historically, stocks have performed better over the long term than other types of investments—including corporate bonds, government bonds, and treasury securities.

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    Balanced Funds...

Balanced funds invest in stocks and bonds and sometimes money market instruments in an attempt to reduce risk but still provide capital appreciation and income.  They are also known as asset allocation funds and typically hold a relatively fixed allocation of the categories of portfolio instruments.

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    Target Date Funds...

Also called target date retirement funds or lifecycle funds, these funds also invest in stocks, bonds, and other investments.  Target date funds are designed to be long-term investments for individuals with particular retirement dates in mind.  The name of the fund often refers to its target retirement date or target date.

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      Alternative Funds...

Alternative funds are funds that invest in alternative investments such as non-traditional asset classes (e.g., global real estate or currencies) and illiquid assets (e.g., private debt) and/or employ non-traditional trading strategies , selling short).

 They are sometimes called “hedge funds for the masses” because they are a way to get hedge fund-like exposure in a registered fund.  These funds generally seek to produce positive returns that are not closely correlated to traditional investments or benchmarks.  Many investors may see alternative funds as a way to diversify their portfolios while retaining liquidity.

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    Money Market Funds...

Money market funds are a type of mutual fund that has relatively low risks compared to other mutual funds and ETFs (and most other investments). 

 By law, they can invest in only certain high-quality, short-term investments issued by the U.S. Government, U.S. corporations, and state and local governments. 

 Government and retail money market funds try to keep their NAV at a stable $1.00 per share, but the NAV may fall below $1.00 if the fund’s investments perform poorly.  Investor losses have been rare, but they are possible.

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 Government Money Market Fund

This is a money market fund that invests 99.5% or more of its total assets in cash, government securities and/or repurchase agreements

that are collateralized solely by government securities or cash.

ARetail Money Market Fund is a money market fund that has policies and procedures reasonably designed to limit all beneficial owners of the money market fund to natural persons.

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Equity Funds...

Equity funds are made up of investments of only common stock. These can be riskier (and earn more money) than other types.

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Fixed Income Funds...

Fixed-income funds are made up of government and corporate securities that provide a fixed return and are usually low risk.

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Balance Fund...

Balanced funds combine both stocks and bonds in the investment pool and offer a moderate to low risk. While low risk may sound good, it is also accompanied by lower rates of return-meaning you risk less, but your investment won't earn as much. You have to decide how much risk you're willing to take on before you invest your money

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    Index-based Funds...

Index-based mutual funds and ETFs seek to track an underlying securities index and achieve returns that closely correspond to the returns of that index with low fees.

 They generally invest primarily in the component securities of the index and typically have lower management fees than actively managed funds. 

Some index funds may also use derivatives (such as options or futures) to help achieve their investment objective.  Index-based funds with seemingly similar benchmarks can actually be quite different and can deliver very different returns.

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    Actively Managed Funds...

The adviser of an actively managed mutual fund or ETF may buy or sell components in the portfolio on a daily basis without regard to conformity with an index, provided that the trades are consistent with the overall investment objective of the fund.  Unlike similar mutual funds, actively managed ETFs are required to publish their holdings daily.

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Exchange-Traded Managed Funds (ETMF)...

An exchange-traded managed fund (ETMF) is a new kind of registered investment company that is a hybrid between traditional mutual funds and exchange-traded funds.

 Like ETFs, ETMFs list and trade on a national exchange, directly issue and redeem shares only in creation units, and primarily use in-kind transfers of the basket of portfolio securities in issuing and redeeming creation units.

 Like mutual funds, ETMFs are bought and sold at prices linked to NAV and disclose their portfolio holdings quarterly with a 60-day delay.

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How Mutual Funds And ETFs Can Provide Returns to Investors?

 ''Which Share Class is Best - A, B, or C?

 ''Things That Could Reduce Mutual Funds’ and ETFs’ Returns''

''Investors can make money from their investments in three ways:

 1.  Dividend Payments—

Depending on the underlying securities, a mutual fund or ETF may earn income in the form of dividends on the securities in its portfolio.  The mutual fund or ETF then pays its shareholders nearly all of the income (minus disclosed expenses) it has earned.

2.  Capital Gains Distributions—

The price of the securities a mutual fund or ETF owns may increase.  When a mutual fund or ETF sells a security that has increased in price, the mutual fund or ETF has a capital gain.  At the end of the year, most mutual funds and ETFs distribute these capital gains (minus any capital losses) to shareholders.

 ETFs seek to minimize these capital gains by making in-kind exchanges to redeeming Authorized Participants instead of selling portfolio securities.

3.  Increased NAV/Increased Market Price—

If the market value of a mutual fund’s portfolio increases, after deduction of expenses and liabilities, then the net asset value of the mutual fund and its shares increases.

 If the market value of an ETF’s portfolio increases, after deduction of expenses and liabilities, then the net asset value of the ETF increases, and the market price of its shares may also increase.

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Things That Could Reduce Mutual Funds’ and ETFs’ Returns

Investors should consider the effect that fees, expenses, and taxes will have on their returns over time.  They can significantly reduce the returns on mutual funds and ETFs.

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Fees and Expenses...

As with any business, running a mutual fund or ETF involves costs.  Funds pass along these costs to investors by imposing fees and expenses.

Shareholder fees are fees charged directly to mutual fund investors in connection with transactions such as buying, selling, or exchanging shares, or on a periodic basis with respect to account fees.

Operating expenses are ongoing mutual fund and ETF costs such as investment advisory fees for managing the fund’s holdings, marketing and distribution expenses, as well as custodial, transfer agency, legal, and accountant’s fees.

 Operating expenses are regular and recurring fund-wide expenses that are typically paid out of fund assets, which means that investors indirectly pay these costs

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Sales Charge (Load) on Purchases—

A fee some mutual funds charge investors when they buy shares, also known as a front-end load.   This fee is typically paid to the broker that sells the mutual fund’s shares.

  In this respect, a sales load is like a commission investors pay when they purchase any type of security (like a stock or an ETF) from a broker.  Front-end loads reduce the amount of an investment.

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Purchase Fee—

a fee some mutual funds charge investors when they buy shares.  Unlike a front-end sales load, a purchase fee is paid into fund assets (not to a broker) and is typically imposed to defray some of the mutual fund’s costs associated with the purchase.

 This fee is often imposed by a mutual fund that has high transaction costs, for example, because of its investment strategy. 

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Deferred Sales Charge (Load)—

A fee some mutual funds charge investors when they sell or redeem their shares, also known as a back-end load.  This fee is typically paid to the broker that sells the mutual fund’s shares. The most common type of back-end sales load is the contingent deferred sales load (also known as the CDSC or CDSL).  The amount of this type of sales load will depend on how long the investor holds his or her shares.

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    Redemption Fee—
A fee some mutual funds charge investors when they sell or redeem their shares within a certain time frame of purchasing the shares. Unlike a deferred sales load, a redemption fee is paid into fund assets (not to the broker) and is typically used to defray fund costs associated with an investor’s redemption.  The SEC limits redemption fees to 2%.

    Exchange Fee—

A fee some mutual funds charge investors when they exchange (transfer) their investment to another fund within the same fund group or family of funds.

    Account Fee—

A fee some mutual funds charge investors in connection with the maintenance of their accounts.  For example, some funds impose an account maintenance fee on accounts whose value is less than a certain dollar amount.

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Annual Fund Operating Expenses (annual expenses paid as a percentage of the value of an investment)

    Management Fees—fees paid out of mutual fund or ETF assets to the fund’s investment adviser for investment portfolio management.  They can also include any other management fees payable to the fund’s investment adviser or its affiliates and administrative fees payable to the investment adviser that are not included in the Other Expenses category.

    Distribution [and/or Service] (12b-1) Fees—fees paid out of mutual fund or ETF assets to cover the costs of distribution (, marketing and selling fund shares) and sometimes to cover the costs of providing shareholder services.  Distribution Fees include fees to compensate brokers and others who sell fund shares and to pay for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature.

  Shareholder Service Fees are fees paid to persons to respond to investor inquiries and provide investors with information about their investments.  Shareholder service fees can be paid outside of 12b-1 fees, and if they are, they are included in the Other Expenses category.

    Other Expenses—fees paid out of mutual fund  or ETF assets that are not already included under Management Fees or Distribution or Service (12b-1 Fees) (such as any shareholder service expenses that are not already included in the 12b-1 fees), custodial expenses, legal and account expenses, transfer agent expenses and other administrative expenses.

    Total Annual Fund Operating Expenses (Expense Ratio)—

The line of the fee table that represents the total of a mutual fund’s or ETF’s annual fund operating expenses, expressed as a percentage of the fund’s average net assets.  Looking at the expense ratio can help investors make comparisons among various mutual funds and ETFs.

Investors should be sure to review carefully the fee tables of any mutual funds or ETFs they’re considering, including no-load mutual funds.  Even small differences in fees can translate into large differences in returns over time.

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    Class A Shares—

Class A shares typically charge a front-end sales load, but they tend to have a lower 12b-1 fee and lower annual expenses than other mutual fund share classes. Some mutual funds reduce the front-end load as the size of the investment increases.  These discounts are called breakpoints.

    Class B Shares—

Class B shares typically do not have a front-end sales load.  Instead, they may charge a contingent deferred sales load and a 12b-1 fee (along with other annual expenses).  Typically the amount of the contingent deferred sales load decreases the longer an investor holds the shares. 

Class B shares also might convert automatically to a class with a lower 12b-1 fee and no contingent deferred sales load if the investor holds the shares long enough.

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    Class C Shares—

Class C shares might have a 12b-1 fee, other annual expenses, and either a front-end or back-end sales load. But the front-end or back-end load for Class C shares tends to be lower than for Class A or Class B shares, respectively.

 Unlike Class B shares, Class C shares generally do not convert to another class; as a result, the back-end load will not decrease over time.  Class C shares tend to have higher annual expenses than either Class A or Class B shares.

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''Investing through a financial adviser or broker''

If you have hired someone to purchase mutual funds on your behalf, some important areas to explore include fees the adviser will charge (this helps determine the extent to which their advice may be biased by their own compensation) and whether they have a well thought-out and consistently executed investment philosophy. We recommend you ask the following questions for each investment an adviser suggests for you:

    ''What fees and commissions do you receive if I invest in this fund?

    Are there any back-end loads (meaning fees) if I decide to sell this fund in the near-term?

    Do you have access to lower cost Institutional share classes?

    What is your firm’s investment philosophy and how does this fund reflect that philosophy?

    Do you favor active or passively managed funds?

    How does this fund match with my Investment Policy Statement?

    How do you analyze and decide when to buy, hold, or sell a fund? Will you buy this fund in one purchase or dollar cost average?

    How often will you rebalance my entire portfolio?

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Know what you own and why..

Selecting a mutual fund may seem like a complicated task. You can simplify the selection process by starting with a clear understanding of your overall investment objectives and risk tolerance. Use that criteria to narrow the field of choice to only those funds that match your specific portfolio objectives.

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Mutual Fund and ETF Terms And Terminalogy

12b-1 Fees—

Fees paid out of mutual fund or ETF assets to cover the costs of marketing and selling mutual fund shares and sometimes to cover the costs of providing shareholder services. Distribution fees include fees to compensate brokers and others who sell fund shares and to pay for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature.

 Shareholder Service Fees are fees paid to persons to respond to investor inquiries and provide investors with information about their investments.

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Account Fee—

A fee that some mutual funds separately charge investors for the maintenance of their accounts.  For example, accounts below a specified dollar amount may have to pay an account fee.

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Authorized Participants—

Financial institutions, which are typically large broker-dealers, who enter into contractual relationships with ETFs to buy and redeem creation units of ETF shares.

Back-end Load—a sales charge (also known as a deferred sales charge) investors pay when they redeem (or sell) mutual fund shares; generally used by the mutual fund to compensate brokers.

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Brokers—an individual who acts as an intermediary between a buyer and seller, usually charging a commission to execute trades.

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Brokerage Commissions—

A fee investors pay their brokers with each purchase or sale of ETF shares.

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Classes—different types of shares issued by a single mutual fund, often referred to as Class A shares, Class B shares, and so on. Each class invests in the same pool (or investment portfolio) of securities and has the same investment objectives and policies.

But each class has different shareholder services and/or distribution arrangements with different fees and expenses and therefore different performance results.

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Closed-End Fund—

A type of investment company that does not continuously offer its shares for sale but instead sells a fixed number of shares at one time (in the initial public offering) which then typically trade on a secondary market, such as the New York Stock Exchange or the Nasdaq Stock Market – legally known as a closed-end investment company.

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Contingent Deferred Sales Load—

A type of back-end load, the amount of which depends on the length of time the investor held his or her mutual fund shares.  For example, a contingent deferred sales load might be (X)% if an investor holds his or her shares for one year, (X-1)% after two years, and so on until the load reaches zero and goes away completely.

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Conversion—

A feature some mutual funds offer that allows investors to automatically change from one class to another (typically with lower annual expenses) after a set period of time.  The mutual fund’s prospectus or summary prospectus will state whether a class ever converts to another class.

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Creation Units—

Large blocks of shares of an ETF, typically 50,000 shares or more, usually sold in in-kind exchanges to Authorized Participants.

Deferred Sales Charge—see back-end load (above).

Discount to NAV—when an ETF’s market price is trading lower than the value of the underlying holdings.

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Distribution Fees—

Fees paid out of mutual fund or ETF assets to cover expenses for marketing and selling mutual fund or ETF shares, including advertising costs, compensation for brokers and others who sell mutual fund shares, and payments for printing and mailing prospectuses to new investors and sales literature prospective investors – sometimes referred to as 12b-1 fees.

Exchange Fee—a fee that some mutual funds charge shareholders if they exchange (transfer) to another mutual fund within the same fund group.

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Exchange-Traded Funds—

A type of an investment company (either an open-end company or UIT) that differs from traditional mutual funds, because shares issued by ETFs trade on a secondary market and are only redeemable by Authorized Participants from the fund itself in very large blocks (blocks of 50,000 shares for example) called creation units.

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Expense Ratio—

A mutual fund’s or ETF’s total annual operating expenses (including management fees, distribution (12b-1) fees, and other expenses) expressed as a percentage of average net assets.

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Front-end Load—

An upfront sales charge investors pay when they purchase mutual fund shares, generally used by the mutual fund to compensate brokers.  A front-end load reduces the amount available to purchase fund shares.

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Index Fund or ETF—

Describes a type of mutual fund or ETF whose investment objective typically is to achieve the same return as a particular market index, such as the S&P 500 Composite Stock Price Index, the Russell 2000 Index, or the Wilshire 5000 Total Market Index.

Investment Adviser—

Generally, a person or entity who receives compensation for giving individually tailored advice to a specific person on investing in stocks, bonds, or mutual funds. Some investment advisers also manage portfolios of securities, including mutual funds.

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Investment Company—

A company (corporation, business trust, partnership, or limited liability company) that issues securities and is primarily engaged in the business of investing in securities. The three basic types of investment companies are open-end funds (mutual funds and most ETFs), closed-end funds, and unit investment trusts (some ETFs).

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Load—see Sales Charge.

Management Fee—fee paid out of mutual fund or ETF assets to the fund’s investment adviser or its affiliates for managing the fund’s portfolio, any other management fee payable to the fund’s investment adviser or its affiliates, and any administrative fee payable to the investment adviser that are not included in the “Other Expenses” category.  A fund’s management fee appears as a category under “Annual Fund Operating Expenses” in the Fee Table.

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Market Index—

A measurement of the performance of a specific basket of stocks or bonds considered to represent a particular market or sector of the U.S. stock market or the economy. For example, the Dow Jones Industrial Average (DJIA) is an index of 30 blue chip U.S. stocks of industrial companies (excluding transportation and utility companies).

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Mutual Fund—

The common name for an open-end investment company.  Like other types of investment companies, mutual funds pool money from many investors and invest the money in stocks, bonds, short-term money-market instruments, or other securities.  Mutual funds issue redeemable shares that investors purchase directly from the fund (or through a broker for the fund) instead of purchasing from investors on a secondary market.

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NAV (Net Asset Value)—

The per-share value of the mutual fund’s or ETF’s assets minus its liabilities. SEC rules require mutual funds and ETFs to calculate the NAV at least once daily.  To calculate the NAV per share, a fund subtracts the fund’s liabilities from its assets and then divides the result by the number of shares outstanding.

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No-load Fund—

A mutual fund that does not charge any type of sales load. But not every type of shareholder fee is a sales load, and a no-load fund may charge fees that are not sales loads.  No-load funds also charge operating expenses.

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Open-End Company—

The legal name for a mutual fund and most ETFs.  An open-end company is a type of investment company.

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Operating Expenses—

the costs a mutual fund or ETF incurs in connection with running the fund, including management fees, distribution (12b-1) fees, and other expenses.

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Portfolio—

An individual’s or entity’s combined holdings of stocks, bonds, or other securities and assets.

Premium to NAV—when an ETF’s market price is trading higher than the value of the underlying holdings.

Prospectus—

Disclosure document that describes the mutual fund or ETF.  Each mutual fund or ETF has a prospectus.  The prospectus contains information about the fund’s costs, investment objectives, risks, and performance.

  You can get a prospectus from the mutual fund company or ETF sponsor (through its website or by phone or mail).  Your financial professional or broker can also provide you with a copy.

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Purchase Fee—

A shareholder fee that some mutual funds charge when investors purchase mutual fund shares.  Not the same as (and may be in addition to) a front-end load.

Redemption Fee—a shareholder fee that some mutual funds charge when investors redeem (or sell) mutual fund shares within a certain time frame of purchasing the shares. Redemption fees (which must be paid to the fund) are not the same as (and may be in addition to) a back-end load (which is typically paid to a broker). The SEC generally limits redemption fees to 2%.

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Sales Charge (or Load)—

The amount that investors pay when they purchase (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a brokerage commission.

Secondary Market—markets where existing securities are bought and sold.

Shareholder Fees—

Fees charged directly to investors in connection with particular investor transactions such as buying, selling, or exchanging shares or periodically with respect to account fees including sales loads, purchase or redemption fees.

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Shareholder Service Fees
—fees paid out of mutual fund or ETF assets to persons to respond to investor inquiries and provide investors with information about their investments.  See also 12b-1 fees.

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Statement of Additional Information (SAI)
—disclosure document that provides information about a mutual fund or ETF in addition to, and sometimes in more detail, than the prospectus. Although mutual funds and ETFs are not required to provide investors with the SAI, they must give investors the SAI upon request and without charge.

Summary Prospectus—a disclosure document that summarizes key information for mutual funds and ETFs.

Total Annual Fund Operating Expense—the total of a mutual fund’s or ETF’s annual fund operating expenses, expressed as a percentage of the fund’s average net assets. The total annual fund operating expenses is included in the fund’s fee table in the prospectus.

Unit Investment Trust (UIT)—

a type of investment company that typically makes a one-time public offering of only a specific, fixed number of units.  A UIT will terminate and dissolve on a date established when the UIT is created (although some may terminate more than fifty years after they are created).

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Which Share Class is Best - A, B, or C?

Again, if you are a do-it-yourself investor, no-load funds are likely your best bet. They typically have low expense ratios and there is no load to pay. This translates to higher returns over time because more of your money is staying in the fund, rather than trickling out into the hands of a stock broker or mutual fund company.

But if you are buying loaded funds, here's the basic breakdown on what's best for you:

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    When A Shares Are Best:

 Long-term investors (more than 5 years and definitely more than 10) will do best with A share funds. Even though the front load may seem high, the ongoing, internal expenses of A share funds tend to be lower than B and C shares.

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    When B Shares Are Best:

 If you think you'll sell your shares in about 5 to 7 years, and the back load amount decreases every year, B shares can be a good idea because you won't pay any load up front and you'll pay little or nothing when you sell. Just be sure that the expense ratio is not too high (hopefully not much higher than 1.00%).

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    When C Shares Are Best: 

This share class is usually the best idea when you'll be holding your mutual fund shares for a short period of time (more than one year but less than three). You don't pay a front load but a back load is sometimes charged if you sell the fund within one year. The ongoing 1.00% level load gets expensive over time, which is why these are best for one to three years.

No-Load vs. Load Funds

Which Type is Best for You and What is the Difference?

Believe it or not, there are good arguments on both sides of the load funds vs no-load funds debate. 

One or the other type may be best for you, but before you build a portfolio of mutual funds you need to learn the basics of loads and understand the purposes and differences between the various share classes of mutual funds.

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What is a Mutual Fund Load?

A mutual fund load is a fee charged for the purchase or sale of a mutual fund.

Loads charged upon purchase of fund shares are called front-end loads and loads charged upon the sale of a mutual fund are called back-end loads or a contingent deferred sales charge (CDSC).

 Funds that charge loads are generally referred to as "load funds" and funds that do not charge loads are called "no-load funds."

Which Share Class is Best - A, B, or C?

Again, if you are a do-it-yourself investor, no-load funds are likely your best bet. They typically have low expense ratios and there is no load to pay. 

This translates to higher returns over time because more of your money is staying in the fund, rather than trickling out into the hands of a stock broker or mutual fund company.

But if you are buying loaded funds, here's the basic breakdown on what's best for you:

    When A Shares Are Best:

 Long-term investors (more than 5 years and definitely more than 10) will do best with A share funds. Even though the front load may seem high, the ongoing, internal expenses of A share funds tend to be lower than B and C shares.

 -----------------------

    When B Shares Are Best:

 If you think you'll sell your shares in about 5 to 7 years, and the back load amount decreases every year, B shares can be a good idea because you won't pay any load up front and you'll pay little or nothing when you sell. Just be sure that the expense ratio is not too high (hopefully not much higher than 1.00%).

 -----------------------

    When C Shares Are Best:

 This share class is usually the best idea when you'll be holding your mutual fund shares for a short period of time (more than one year but less than three). You don't pay a front load but a back load is sometimes charged if you sell the fund within one year. The ongoing 1.00% level load gets expensive over time, which is why these are best for one to three years.

No-Load vs. Load Funds

Which Type is Best for You and What is the Difference?

Believe it or not, there are good arguments on both sides of the load funds vs no-load funds debate. 

One or the other type may be best for you, but before you build a portfolio of mutual funds you need to learn the basics of loads and understand the purposes and differences between the various share classes of mutual funds.

--------------------------

What is a Mutual Fund Load?

A mutual fund load is a fee charged for the purchase or sale of a mutual fund.

Loads charged upon purchase of fund shares are called front-end loads and loads charged upon the sale of a mutual fund are called back-end loads or a contingent deferred sales charge (CDSC). Funds that charge loads are generally referred to as "load funds" and funds that do not charge loads are called "no-load funds."