As a bridge linking American investors with securities issuers-a function known as financial intermediation-the mutual fund industry has contributed not only to the financial well-being of millions of mutual fund shareholders, but also to economic growth through its effect on money and capital markets and on overall capital formation. For example, the active market for commercial paper and bankers' acceptances is directly related to the rapid growth of money market funds over the past 30 years. Mortgage-backed securities funds have likewise expanded the market for securitized mortgage loans, thereby increasing the availability of residential mortgage financing for homeowners and lowering the cost of owning a home for millions of American families.

In the municipal bond market, the increased popularity of municipal bond funds has played a major role in financing state and local governments and reducing the cost of municipal credit, even as the demand for tax-exempt securities by banks and insurance companies has been declining. On the equity side, the increased size and number of funds investing in companies with growth potential have stimulated the financing of many new equity issues by making it easier and cheaper for young companies to issue stock. There is no question, then, of the significant economic contribution that has been made by mutual funds.

Furthermore, mutual funds have developed into important investment vehicles for U.S. households. For example, in 1980, the percentage of U.S. households that owned mutual funds was 5.7%. By 1990, that percentage had increased to 25.1%. This trend continued to the point that, by 2013, the percentage reached 46.3%, according to a survey conducted by the Investment Company Institute (ICI).

This first module provides a general understanding of what a mutual fund is, how it is regulated, and how it is organized. It continues with a discussion of how mutual funds are distributed, how they are taxed, and how they are priced. It also covers the various operating expenses incurred by a mutual fund, the various services offered by mutual funds, and concludes with how to read a mutual fund statement.

Note: You should read the Preface of this module as it contains important general information pertaining to this course and the final examination, including suggested study procedures to help you master the material.

Also, at the conclusion of the nine modules, it is recommended that the student take the free practice examination on our website-www.cffp.edu- instructions for which are given in the Preface. This practice examination is intended to be representative of the final examination and to provide students with an opportunity to self assess the degree to which they are ready to take the examination.

Finally, remember you have six months from the time of enrollment to test, after which there will be a re-activation fee. Contact the Student Service Center, at 800-237-9990, Option 2, to find out the exact six-month date of your enrollment.

Authors:

Jason G. Hovde, MBA, CFP®

Jason G. Hovde is the investments professor at the College for Financial Planning. Prior to joining the College, Jason had a financial planning/investment advisory practice and was a branch manager for one of the largest independent broker/dealers in the country. Additionally, he spent several years with another independent broker/dealer, first as a trader and options principal, and then as a member of the senior management team. Jason holds two bachelor’s degrees, one in accounting and the other in behavioral science from Metropolitan State University of Denver, as well as an MBA in finance and accounting from Regis University. You can contact Jason at jason.hovde@cffp.edu.

Michael B. Cates, MS, CFP®

Michael B. Cates is the Senior Director of Certification Programs at the College for Financial Planning. In this capacity, he is the Program Director of the CFP Certification Professional Education Program, responsible for overseeing development of the educational materials and examinations. Mike joined the College in 1986, and is the professor for the Income Tax Planning course of the CFP Certification Professional Education Program. He received his CFP® certification in 1995, and completed the College’s Master of Science degree program in 1997. In addition to his responsibilities at the College, Mike also maintains a tax planning and preparation firm in Aurora, Colorado. You can reach Mike at mike.cates@cffp.edu.

Complexity Level: Overview