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Mutual Funds: Overview |
Tuesday, May 21, 2013 7:54:38 PM EDT
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Before investing in a mutual fund, be sure to carefully consider the fund's objectives, risks, charges, and expenses. For a prospectus containing this and other important information, please contact the fund company or a TD Ameritrade Client Services representative. Please read the prospectus carefully before investing.
*This list represents what Morningstar Associates believes to be the 'top pick' funds in each category, from the universe of no-load funds with minimums not above $10,000 and open to new investors available on TD Ameritrade's platform.
Risks of Bond Mutual Funds
Investments in bond funds are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Bonds and bond funds will typically decrease in value as interest rates rise.
Investments in bond funds are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Bonds and bond funds will typically decrease in value as interest rates rise.
Risks of High-Yield Bonds
Bonds with a credit rating below investment grade generally have higher coupon yields and additional risks. One risk is the higher possibility of default, where the company would not be able to continue to make interest payments or return an investor's principal (capital investment) when a bond matures. For More...
Bonds with a credit rating below investment grade generally have higher coupon yields and additional risks. One risk is the higher possibility of default, where the company would not be able to continue to make interest payments or return an investor's principal (capital investment) when a bond matures. For More...
Risks of Bond Funds vs. Individual Bonds
Bond funds give an investor the benefits of diversification and professional money management; but they differ from buying an individual bond. An individual bond has a maturity date and the holder (barring default of the issuer) would receive their investment capital back upon maturity. Bond funds do not have a maturity date. The portfolio manager of an actively managed bond fund would most likely sell a bond prior to this date to reinvest in other bonds or to raise cash to meet redemptions by fund shareholders. If an Advisor needs to raise an unusual amount of cash they may need to sell bonds before they want to and at prices lower then they wish. In this case the overall value of the fund share price (net asset value) would be lower and result in a possible capital loss upon shareholders' redemption. For More...
Bond funds give an investor the benefits of diversification and professional money management; but they differ from buying an individual bond. An individual bond has a maturity date and the holder (barring default of the issuer) would receive their investment capital back upon maturity. Bond funds do not have a maturity date. The portfolio manager of an actively managed bond fund would most likely sell a bond prior to this date to reinvest in other bonds or to raise cash to meet redemptions by fund shareholders. If an Advisor needs to raise an unusual amount of cash they may need to sell bonds before they want to and at prices lower then they wish. In this case the overall value of the fund share price (net asset value) would be lower and result in a possible capital loss upon shareholders' redemption. For More...
Risks of Commodity Mutual Funds
Commodity funds may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity. Commodity funds may be subject to greater volatility than traditional funds and may not be suitable for all investors. Unique risk factors of a commodity fund may include, but are not limited to the fund's use of aggressive investment techniques such as derivatives, options, forward contracts, correlation or inverse correlation, market price variance risk and leverage.
Commodity funds may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity. Commodity funds may be subject to greater volatility than traditional funds and may not be suitable for all investors. Unique risk factors of a commodity fund may include, but are not limited to the fund's use of aggressive investment techniques such as derivatives, options, forward contracts, correlation or inverse correlation, market price variance risk and leverage.
Risks of Currency Mutual Funds
The value of the shares of a currency fund relates directly to the value of the foreign currency held by the particular product. This creates a concentration risk associated with fluctuations in the price of the applicable foreign currency. Unique risk factors of a foreign currency include national debt levels and trade deficits, domestic and foreign inflation rates, domestic and foreign interest rates, investment and trading activities of institutions and global or regional political, economic or financial events and situations. Currency funds may not be suitable for all investors. For a more complete discussion of risk factors applicable to each currency fund, carefully read the fund prospectus.
The value of the shares of a currency fund relates directly to the value of the foreign currency held by the particular product. This creates a concentration risk associated with fluctuations in the price of the applicable foreign currency. Unique risk factors of a foreign currency include national debt levels and trade deficits, domestic and foreign inflation rates, domestic and foreign interest rates, investment and trading activities of institutions and global or regional political, economic or financial events and situations. Currency funds may not be suitable for all investors. For a more complete discussion of risk factors applicable to each currency fund, carefully read the fund prospectus.
Risks of Floating Rate Loan Funds
These funds invest in loans, where banks have lent money to a company and then the loan is traded between parties. The company taking out the loan pays the loan holder interest and at maturity (barring default) they receive back the principal amount of the loan. Companies that enter into these loans are charged higher rates of interest because they usually have a larger then average amount of debt (for their industry) which makes them a highly leveraged company with additional credit risk. The loan holder receives higher interest payments from the borrower company because of the added risk of that company not being able to meet future interest payments and or defaulting on the loan. The term "floating" is used because the rates of the loans held by the fund reset, usually every 30, 60 or 90 days, with rates related to a reference rate, such as the London Interbank Offered Rate (LIBOR). Where corporate bonds trade in an organized market, Floating Rate Loan trading is largely unregulated. An investor should consider the added credit, liquidity and valuation risk before making this type of investment. For More...
These funds invest in loans, where banks have lent money to a company and then the loan is traded between parties. The company taking out the loan pays the loan holder interest and at maturity (barring default) they receive back the principal amount of the loan. Companies that enter into these loans are charged higher rates of interest because they usually have a larger then average amount of debt (for their industry) which makes them a highly leveraged company with additional credit risk. The loan holder receives higher interest payments from the borrower company because of the added risk of that company not being able to meet future interest payments and or defaulting on the loan. The term "floating" is used because the rates of the loans held by the fund reset, usually every 30, 60 or 90 days, with rates related to a reference rate, such as the London Interbank Offered Rate (LIBOR). Where corporate bonds trade in an organized market, Floating Rate Loan trading is largely unregulated. An investor should consider the added credit, liquidity and valuation risk before making this type of investment. For More...
Risks of Structured Retail Products
Some mutual funds may invest in structured securities that generate income. The fund's prospectus and Statement Additional Information would detail a fund's ability to invest in these securities. Generally, structured securities are considered unsecured debt where payments are generally linked to the value of other underlying assets or an index. Some allow for all or part of your investment to be guaranteed if held to maturity or if they are called (redeemed) by the issuer. However structured securities can have significant drawbacks which include credit risk, market risk, lack of liquidity and higher fees. For More...
Some mutual funds may invest in structured securities that generate income. The fund's prospectus and Statement Additional Information would detail a fund's ability to invest in these securities. Generally, structured securities are considered unsecured debt where payments are generally linked to the value of other underlying assets or an index. Some allow for all or part of your investment to be guaranteed if held to maturity or if they are called (redeemed) by the issuer. However structured securities can have significant drawbacks which include credit risk, market risk, lack of liquidity and higher fees. For More...
Risks of the Unique Aspects of Leveraged Mutual Funds
Leveraged mutual funds seek to deliver multiples of the performance of a benchmark. Leveraged mutual funds entail unique risks, including but not limited to: use of leverage; aggressive and complex investment techniques; and use of derivatives. Leveraged mutual funds seek results over periods as short as a single day. Results of this strategy can be affected substantially by compounding. Returns over longer periods will likely differ in amount and even direction from the benchmark for the same period of time. For More...
Leveraged mutual funds seek to deliver multiples of the performance of a benchmark. Leveraged mutual funds entail unique risks, including but not limited to: use of leverage; aggressive and complex investment techniques; and use of derivatives. Leveraged mutual funds seek results over periods as short as a single day. Results of this strategy can be affected substantially by compounding. Returns over longer periods will likely differ in amount and even direction from the benchmark for the same period of time. For More...
Leveraged Mutual Funds - Special Considerations to Understand
What is a leveraged mutual fund?
As the name implies, these mutual funds seek to provide leveraged returns based on the performance of a particular benchmark. It's important to note that these funds seek to provide these leveraged returns on a daily basis. Due to the impact of what is known as daily compounding, investors should not expect the promised daily leverage of these returns to persist over periods longer than a day. This is especially true if the leveraged fund is tracking a very volatile underlying index. Leveraged funds seek daily returns that are generally 3x, 2x, or inverse leverage -2x, or -3x of the underlying index performance. Leveraged mutual funds generate their leverage through the use of derivative positions. Because derivatives are taxed differently from equity or fixed-income securities, investors should be aware that these funds may not be managed for tax efficiencies that investors may expect from some mutual fund products. For More...
What is an inverse mutual fund?
These funds are related to leveraged mutual funds in that they seek to provide an opposite or inverse return on a particular benchmark. Similar to leveraged mutual funds, this inverse return is provided on a daily basis, and investors should not expect the promised daily leverage of these returns to persist over periods longer than a day. Inverse mutual funds generate their returns through the use of derivative positions. Because derivatives are taxed differently from equity or fixed-income securities, investors should be aware that these funds may not be managed for tax efficiencies that investors may from some mutual fund products. For More...
Inverse and leveraged Funds are not suitable for all investors. They should only be utilized by investors who understand: the risks associated with the use of leverage, the consequences of seeking daily leveraged investment results, the risks of shorting, and intend to actively monitor and manage their investments.
TD Ameritrade receives remuneration from fund companies, including those participating in its no-load, no-transaction-fee program, for record-keeping, shareholder services, and other administrative and distribution services. The amount of TD Ameritrade's remuneration for these services is based in part on the amount of investments in such funds by TD Ameritrade clients. No-transaction-fee funds and other funds offered through TD Ameritrade have other fees and expenses that apply to a continued investment in the fund and are described in the prospectus.
The Investment Profile report is for informational purposes only. Past performance is no guarantee of future results. Returns will vary and shares may be worth more or less than their original cost when sold. The fund is not FDIC-insured, may lose value and is not guaranteed by a bank or other financial institution.
Research and planning tools are obtained by unaffiliated third party sources deemed reliable by TD Ameritrade. However, TD Ameritrade does not guarantee accuracy and completeness, and makes no warranties with respect to results to be obtained from their use.
Morningstar Risk-Adjusted Ratings: The Overall Rating is derived from a weighted average of the performance figures associated with its 3-, 5-, and 10- year (if applicable) Morningstar Rating Metrics. Morningstar, Inc. is an independent publisher of mutual fund research and ratings. Ratings reflect a fund's risk-adjusted 3-, 5-, and 10-year total returns, including any sales charge. A Fund is rated against all other funds in its category. 5 stars are assigned to the top 10%; 4 stars to the next 22.5%; 3 stars to the next 35%; 2 stars to the next 22.5%; and 1 star to the bottom 10%. Morningstar only rates funds with at least a 3-year history.
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