When choosing a mutual fund, one of the most important things to consider is your investment objective. Mutual funds are classified into the following three categories: income, growth, and growth and income. The following exercises feature examples of three investors, each with one of the stated goals. Complete the paragraphs to illustrate your understanding of each mutual fund category. Income Objective
Stelios is a retiree with no children who is looking to purchase a mutual fund that will provide a relatively safe investment as well as regular income payments. Among mutual funds with an income objective, Stelios can either buy shares in__which invest in CDs, government securities, and short-term obligations money market funds bond funds for a slightly higher current income return and issued by corporations, or he can investfor capital appreciation as___.
Within the category of bond funds are even more specific options. Stelios decides to buy shares in a fund that invests in Treasury issues maturing in five to ten years, known as___termbonds.
He is also collecting income from shares he already owns in a___bond fund, a type of fund that mortgage-backed municipal unk ests in high-yield, high-risk corporate bonds.
Growth Objective
Claire is a mother who already holds a diversified portfolio of conservative investments. She is looking to invest the money she received from a bonus at work in a mutual fund that invests in stocks with market capitalization of more than $10 billion. She decides to purchaseshares.
Janos is a recent college graduate who plans to invest $300 from each monthly paycheck in a mutual fund. He is interested in a fund that balances current income and capital gains, but with an emphasis on capital gains, so he buys $2,000 worth ofshares. He would also like to put some money into a fund that large-cap fund equity-income fund growth-and-income fund divides investments wisely among different types of asset classes; therefore, he purchasesshares as well.
One feature common to all of the above mutual funds is the automatic investment plan. Based on the characteristics of the investors above, this feature would be of most interest to.