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Investing Basics
Mutual Funds Glossary
Definitions
B
Back End
See "Deferred Load".
Book Value
The original purchase price (cost) of your investment plus distributions valued at the time of distribution.
C
Capital Gains
Profit earned from the sale of real estate, securities, mutual funds or other capital assets.
Capitalization
The total amount of all securities, including long-term debt, common and preferred stock, issued by a company.
Closed end fund
A fund company that issues a fixed number of shares. Its shares are not redeemable but are bought and sold on stock exchanges or the over-the-counter market in the same manner as other exchange traded equities.
Compound Interest
Income earned on income that was previously earned. For example, if you invest $20,000 at 8%, you would earn $1,600 interest the first year. In the second year, you would earn an additional $128 of interest on the $1,600 interest of the first year as well as another $1,600. That $128 is called compound interest.
D
DCAF
Dollar Cost Averaging Fund
Deferred Load
A deferred load fund is a mutual fund series that has no commission to purchase but is subject to a fund company charge upon redemption. Typically deferred load charges start at around 5% to 7% in the first year, and will decline towards 0% over the next 5 to 7 years. Also known as DSC funds, back end funds or rear load funds.
Diversification
Diversification occurs by when investing in a number of different securities. This reduces the risks inherent in investing by spreading the risk over several different investments. Diversification may be among types of securities, companies, industries or geographic locations.
Dividends
A per-share payment designated by a company's board of directors to be distributed among shareholders. For preferred shares, it is generally a fixed amount. For common shares, the dividend varies with the fortunes of the company and the amount of cash on hand. It may be omitted if business is poor or the directors withhold earnings to invest in plant and equipment.
Dollar Cost Averaging
A principle of investing which entails the use of equal amounts for investment at regular intervals in the hope of reducing average share cost by acquiring more shares in periods of lower securities prices and fewer shares in periods of higher securities prices.
E
Early Redemption Fee
Fee charged to unitholders who redeem or switch out of their units within 30 or 90 days of their original purchase. Should an investor choose to redeem or switch during this time, a 2% fee would be charged and paid to the fund for the benefit of other unitholders.
F
Foreign Content
The 2005 Federal Budget removed the foreign content
limit for registered plans. Customers with RSPs, pension plans or
other registered accounts are no longer subject to the 30% foreign
content limit. This change means that customers can now exceed 30%
in foreign holdings in their accounts without incurring a monthly
1% penalty.
Front-Load
A front load mutual fund is a fund that offers a broker the option of charging investors a commission on the purchase. The commission is charged as a fixed percentage of the gross dollars invested. Also known as Service Charge (SC), Initial Service Charge (ISC), Low Service Charge (LSC), or Front End (FE).
Fund Manager
The individual or team of individuals manages a mutual funds portfolio of stocks, bonds and other securities. The fund manager decides when to buy or sell the securities held in the mutual fund. The fund manager is paid an annual management fee for his or her services. A fund manager is also referred to as a Portfolio Manager, Money Manager, or Mutual Fund Manager.
Fund Sponsor
The name of company responsible for promoting and distributing its fund(s). Most fund sponsors will promote under the same brand name several different funds, often managed by different fund managers. Also known as the Fund Company.
G
Growth Stock
Growth stocks are equity shares of companies whose earnings are expected to increase at an above-average rate. Low yields and relatively high price/earnings ratios often typify growth stocks. Their prices reflect investors' belief in their future earnings in growth.
I
Inception Date
The year that a fund was formed and became available for sale to unit holders.
Initial Sales Charge
See Front Load.
L
Low Load
With a low load, the mutual funds company pays the salesperson a reduced commission at the time of purchase, and a reduced redemption fee generally applies to redemptions made after the first two years of purchase. Also known as Level Load or Low Sales Charge (LSC).
M
Management Expense Ratio (MER)
Is a measure of the total administrative costs incurred by a mutual fund expressed as a percentage of the assets. These costs include costs incurred in day to day operation of the fund and the compensation paid to the fund manager for managing the investments (management fee).
Management Fee
The compensation paid to the mutual fund manager by the fund company for managing the mutual fund and for supervision of the day-to-day administration and operations of the mutual fund.
Market Price
In the case of a security, market price is usually considered the last reported price at which the stock or bond is sold.
N
Net Asset Value
Indicates the size of the fund in millions of dollars. It is calculated as total assets minus current liabilities.
Net Asset Value per Share
Calculated by subtracting current liabilities from total assets and dividing by the total number of shares outstanding. Investors may buy a fund at this price plus fees, if any, and may sell at this price minus redemption fees, if any. Net Asset Value per Share is not known at the time that an order is placed since it is reflection of closing security prices within the fund.
No Load
Term used to describe a mutual fund that can generally be purchased or redeemed without a sales commission.
O
Open-end fund
An open-end mutual fund continuously issues and redeems units. If a investor wishes to buy or sell units of an open-end mutual fund, they will do so directly from the fund (as opposed to using a stock exchange). Most mutual funds are open-ended.
R
Rates of return
Annualized Rate of Return
The average (compounded) annual return earned over a multi-year period
Calendar Rates of Return
A calendar year return is an annual return for a period beginning on January 1 and ending December 31.
Compound Rates of Return
The average annual change in the net asset value, assuming all dividends and (3, 5 and 10 years) capital gains are reinvested on the date of distribution. Sales or redemption fees are also excluded.
Current Rates of Return
The current rate of return is the annual rate of return on an investment. For a stock, it is calculated by dividing the annual dividend by the current market price.
Simple Rates of Return
The percentage change in the net asset value in each period of time. This return (1 mo., 6 mos. and 1 year) includes reinvestment of dividends and capital gains and excludes sales or redemption fees.
Rear Load
See Deferred Load.
Risk
The possibility of losses being suffered or the uncertainty of future returns. Risk can take several forms, some of which are financial risk, political risk, operational risk, environmental risk.
S
Sales charge
See Front Load.
Short Term trading fee
See Early Redemption Penalty.
V
Value
A V security is one that is seen to be under valued relative to its "fair" market value. An investor who purchases a Value security is expecting that once the market realize that the stock is in fact undervalued, the price of the stock will rise.
W
WRAP Account
An account offered by Investment Dealers whereby investors are charged an annual management fee based on the value of invested assets. TD Waterhouse offers a similar service in the TD Managed Assets Program.
Fund Types
Canadian Funds
Canadian Equity and Blue Chip Equity
These funds invest primarily in Canadian common shares from issuers with market capitalization larger than $500 million.
Canadian Small Cap Equity
These funds invest primarily in Canadian common shares of companies with market capitalization less than $500 million dollars.
Canadian Balanced
These funds invest in a mixture of primarily Canadian Equities and Canadian Bonds. The ratio of the holdings in these two
categories will vary from time to time, but will remain split in a ratio of between approximately 70/30 and 30/70 of the overall
portfolio holdings.
Canadian Dividend
These funds invest primarily in Canadian common and preferred shares, which pay dividend income.
Canadian Income
These funds invest primarily in Canadian bonds issued by a variety of government and/or corporate issuers.
Mortgage and Short Term Bond
Funds in this category are invested primarily in Canadian residential mortgages. Some funds may hold short term duration bonds.
US Funds
US Large Cap Equity
These funds invest primarily in US common shares of companies with a market capitalization in excess of approximately $10 billion.
U.S. Small & Mid Cap Equity
These funds invest primarily in common shares of US companies with a market capitalization of less than approximately $1.5 billion in the case of small cap holdings and between approximately $1.5 billion and $10 billion for mid cap share holdings.
U.S. Balanced
These funds invest in a mixture of U.S. Equities and Bonds. Generally the ratio of the holdings in these two categories will remain split in a ratio of between approximately 70/30 and 30/70 of the overall portfolio holdings.
Sector Funds
Resource
These funds invest primarily in common shares of Canadian corporations involved in the exploration for, mining or drilling of, refining of or production and harvesting of natural resources ranging from pulp and paper to base metals. These funds can also have up to 30% of their holdings invested in companies based outside of Canada.
Precious Metals
These funds invest primarily in the common shares of Canadian domiciled gold or other precious metals producing, mining or exploration companies. Some funds may also choose to hold the physical precious metals commodities as a portion of their investments. These funds can also have up to 30% of their holdings invested in companies based outside of Canada.
Other Sector/Special Equity
The investment strategies of funds in this category will vary but may include Health Care, Science and Technology and Telecommunications funds.
International Funds
Global/International Equity
These funds invest primarily in common shares issued by corporations domiciled outside of Canada. In some cases the funds may exclude U.S stocks. Please talk to a Mutual Fund Specialist at 1-800-461-3863 for specific details.
European Equity
These funds invest primarily in common shares of companies based in Western Europe including the United Kingdom, and in some cases Eastern Europe.
Japanese Equity
These funds invest primarily in common shares issued by corporations domiciled
in Japan.
Asian & Pacific Funds
These funds invest primarily in equity investments in the Asia Pacific region which can include countries extending from Korea to South East Asia. Some funds may also invest in Australia and New Zealand.
Latin American Equity
These funds invest primarily in common shares issued by corporations domiciled in Central and South America.
Emerging Markets
These funds invest primarily in equities issued by companies domiciled in the less developed countries of the world. This can include, but is not limited to, Central and South America, Asia Pacific countries and Eastern Europe.
Global Bond
These funds invest primarily in bonds issued by governments or corporations domiciled outside of Canada.
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