0 Comment

Project – Fall 2019GUIDELINES FOR MUTUAL FUNDS PROJECTProject topic:Investing in mutual funds: Select one mutual fund from each of three different firms. Acquire information about the funds, their policies, their costs, etc. Track and graph the value(s) of the funds from 9/11/2019 through 11/27/2019. Determine your before-tax rate of return on each of the funds for the investment period (including your costs of investment). Assess the relative performance of each of the fundsNote: There are a number of sites on the Internet or printed sources (such as the business section of newspapers) from which information and guidance can be acquired regarding both of these topics:APPROACH TO PREPARING THIS PROJECT1. Select your three funds.2. Discuss each of the three funds.  Give a background of the fund investment strategy(s); the historical performances; and current costs related to the investments.3. Determine a reasonable amount that you will invest in each fund4. Identify if there are any costs to purchase the funds.  This may lower your initial investment (or not).5. Create a graph of the value of your investment each week or each month (depending on the data that is available from your sources).  The date range is 9/11/2019 thru 11/27/2019.6. On 11/27/2019, determine the selling price of each of the three investments.  You will have to deduct any final fees and other costs to sell each of the investments.  You may need to research this information and discuss it in the section for each mutual fund.7. Calculate the before tax Rate of Return for the period of the investment8. Calculate the before tax annualized Rate of Return.FINAL PROJECT REPORTThe final Project Report is due on 12/3/2019, and will be posted online.  It must include:Description of Purpose (a Problem Statement for the project) (maximum one to two paragraphs describing the assignment and it’s purpose)Statement of Theory and Process (one to two pages explaining how Engineering Economy is applied to the Purpose of the project)Presentation and Discussion of data, results and conclusions (minimum of 3 pages but graded on how thoroughly the data is discussed and how complete are the conclusions)Appendixes (to include copy of status report plus supporting documentation, including references as appropriate)The report must be typed, double-spaced, using an easily-read font with standard margins, on 8-1/2″ x 11″ paper.It is expected that proper English grammar, spelling and sentence structure will be used. Spreadsheets should be used for data analysis, and graphical representations must be computer-generated.It is a fundamental principle of academic integrity that the authorship of the intellectual content of work that is submitted as part of a class assignment must be fairly represented. Contributions of language and thought must be appropriately credited; submissions that do not do so are not acceptable.Mutual Fund TerminologyNet asset value refers to the total value of the investments in a mutual fund divided by the number of outstanding shares. Capital gains, which are generated when a fund manager sells an investment at a profit, are often paid out annually.Calculating the Rate of Return on your InvestmentMutual Funds are investments that hopefully will go up in value. This movement is reflected in the fund’s NAV. For example, if your fund’s NAV moves from $10 per share to $11 per share, you’ve generated a $1 per share profit, for a 10 percent return. This gain is unrealized — you don’t have to pay taxes on it until you sell the shares at a profit. When a fund’s income and capital gains distributions are added to this NAV movement, you have the total return of the mutual fund.To calculate a mutual fund’s total return, add the fund’s distributions to the difference in the fund’s NAV over the course of the year:The Mutual Funds ROR over this project: Example calculation: Final NAV: $12 per share Income Distributions: $0.50 per share Capital Gains Distributions: $0.75 per share Original NAV: $10 per shareROR = ($12 + $0.50 + $0.75 – $10) / ($10) x 100 = = ($13.25 – $10) / ($10) x 100 = 3.25 / ($10) x 100 = 32.5 percent total returnDifference From Stock Return CalculationStocks don’t technically have a NAV, although a stock’s share price is similar in concept. Since stocks are not funds, they don’t pay out capital gains distributions like funds. Thus, the formula is slightly different when calculating stock returns:Total Stock Return = (Final Stock Price – Original Stock Price) + Dividends / Original Stock PriceExample ROR for Stocks: Final Stock Price: $42 Original Stock Price: $35 Dividends: $1 per shareUsing the formula, here’s how you’d calculate a stock’s total return:($42 – $35) + $1 / $35 = $8 / $35 = 22.857 percent total returnAbsolute ReturnsThis method is common when the holding period of your investment is less than 12 months. It helps you calculate the simple returns on your initial investment.Absolute Returns refers to the returns that a fund achieves over a period of time.It measures the percentage appreciation or depreciation in the value of the NAV over a certain time frame.To calculate absolute returns, all you need is the current NAV and the initial NAV of your investment.Example of Absolute Return on Mutual FundsIf the current NAV is 15 and the previous NAV was 13.5, the return would be (15 – 13.5) x 100/13.5 = 150/13.5 = 11.11% over the time period.If the time period is in months say 3 months or in years say 2, or in days say 100, in that case, the above formula can be used asThe above example will produce returns of 11.11 x 4 = 44.44% (for 3 months); or 5.55% for 2 years or 40.55% for a period of 100 days.Example for calculation of the absolute returns of a Mutual Fund:If you have purchased it at Rs.11 per unit and after 3 years, if NAV appreciates to Rs. 15 per unit, here the absolute return is 36.36% as calculated below:(15 – 11) x 100 / 11 = 36.36%Mutual Fund Costs to Buy and SellYou could hire an advisor to purchase your funds and annual investment fees may range from .75% to 1.5% on your assets.  There may be additional charges.  In this project, we assume you did not use an advisor.  It is still important to understand the fees and expenses you’ll be charged by the mutual fund company. No-load does not mean “free.” Management and operating expenses are always charged by the fund company and should be considered in your calculations if it affected (reduced) the dollar amount you invested.In addition to the management and operating expenses, if you buy a no-load mutual fund, you may pay a transaction fee through the discount broker or mutual fund company. These fees range from $0 to $75 depending on the size of the transaction and the particular mutual fund purchased. It’s also important to note that many funds will charge a redemption fee of 2% if you sell your shares in the fund within 90 days of purchase.There are many options available to you to purchase your funds. There are discount brokers and mutual fund companies that offer direct investment opportunities and many are even available online.