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Test your knowledge of mutual-fund rulesPosted by Randy on: 2005-09-23 14:32:51 in category:
Mutual funds [ Print | Permalink / 0 Comment(s) ] Posted on Sun, Sep. 18, 2005 Test your knowledge of mutual-fund rules By Charles A. Jaffe MarketWatch Mark Twain once noted that "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." When it comes to mutual-fund investing, however, both situations can lead to mistakes, misjudgment and poor money management. That's why today you are facing Part II of a quiz designed to test what you know and that may expose what you know that just ain't so. Either way, the more that you know about how funds operate, the better you will do if your funds ever pose a real investment test. 1. True or false: When a mutual fund changes portfolio managers, it can wait months before notifying shareholders. 2. True or false: Management needs your approval to change the style or investment policies of your fund. 3. Which of these fees is a no-load mutual fund allowed to charge investors: (a) termination fee (b) short-term redemption fee (c) low-balance fee (d) management fee (e) 12b-1 fee (f) all of the above. 4. Yes or no: In a taxable account, you transfer money from the XYZ Growth fund into XYZ Value. You never touch the money. Do you owe capital gains taxes on profits earned in XYZ Growth? 5. True or false: A mutual fund can continue to use a star manager's superior track record in advertising, even after the manager has left the fund. 6. A total expense ratio of 1.5 percent is considered below average in which of the following investment categories: (a) international (b) small-cap growth (c) large-cap growth (d) general bond funds. 7. When you call to make a change to your fund account, the management company says you will need a "signature guarantee." You get that guarantee from your: (a) notary public (b) banker (c) lawyer. 8. Over the most recent five-year period, which of these fund categories had the highest annualized return: (a) China region funds (b) balanced funds (c) general muni debt funds (d) large-cap value funds. Here are the answers. 1. True. No rule forces funds to notify you of a change in managers. Funds need only tell you of the change in the next regular mailing and can bury the news at the back of a semiannual report. 2. False, although there are a few cases where management still needs your OK. Shareholder approval is required on "fundamental issues" -- which sounds like it should include investment policies -- but most firms have rewritten prospectuses so that style and policy issues are considered "nonfundamental," meaning they can be altered without a vote. 3. (f). "No-load" is about sales charges. Fees for closing accounts, quick redemptions, falling below minimum account size, or management of the fund have no bearing on the load. The 12b-1 fee, which is for sales and marketing, is trickier, but so long as it does not exceed 0.25 percent, regulators allow a fund to be described as having no sales loads. 4. Yes. Phone transfers are a sale and a purchase, and the sale is a taxable event, meaning you owe Uncle Sam for any gains realized by selling (or you get the tax benefit from any losses recognized in the trade). 5. True. The manager's record belongs to both the fund and the manager. That's why a manager can use his past record to pump up interest in a new fund, while the company running his old fund can continue to tout the superior results earned during the star manager's tenure. 6. (a) and (b). Lipper pegs the average total expense ratio for international funds at 1.70 percent and at 1.69 percent for small-cap growth funds. The expense ratio for the average large-cap fund is 1.47 percent; on general bond funds, it is 1.01 percent. 7. (b). A few Neanderthalish fund firms require written instructions plus a bank's guarantee that your signature is real before closing accounts, processing redemptions or changing an automatic investment plan. 8. (c). According to Lipper, general muni bond funds are up an average of 5.43 percent per year over the last five years, with China funds gaining an annualized average of 3.81 percent, large value funds up 3.09 percent and balanced funds up just 1.73 percent. Chuck Jaffe is senior columnist for MarketWatch. He can be reached at jaffe@marketwatch.com or at Box 70, Cohasset, MA 02025-0070. Homepage Please support are sponsors. To design you custom retirement plan. http://www.retirement-plan.us For planing a IRA rollovers. http://www.ira-rollover.us Professional asset allocation and the wonders it can do. http://www.asset-allocation.us Professional money management: National ranked performance. http://www.roth-ira.us Managers selected to fit your needs. http://www.money-managers.us |
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