Mutual Funds & ETFs

Open-End Investment Companies

• Mutual funds continuously offer redeemable shares at NAV or POP depending on sales charge structure. NAV = (assets - liabilities) / shares outstanding, typically computed once daily after market close.
• Class A shares usually carry front-end sales charges and lower 12b-1 fees; Class B historically used contingent deferred sales charges; Class C usually has level loads and higher ongoing expenses.
• Breakpoints reduce front-end sales charges for larger purchases. LOI allows an investor to qualify for a breakpoint based on intended future purchases; rights of accumulation combine existing holdings with new purchases.

ETFs

• ETFs trade intraday like stocks and may be purchased on margin, sold short, and bought with limit or stop orders. They generally have lower expense ratios and are often more tax-efficient due to in-kind creation/redemption.
• ETF prices can trade at discounts or premiums to NAV intraday, though arbitrage tends to keep prices close.

Taxes and Performance

• Mutual fund capital gains distributions are taxable when distributed, even if reinvested. Buying right before a distribution can create a taxable event without real economic gain; this is buying the dividend.
• Closed-end funds trade in the secondary market and can trade at discounts or premiums to NAV, unlike open-end shares which are sold and redeemed by the fund company.

Series 7 focus

• Distinguish sales charges from operating expenses, understand breakpoint documentation, and know which products are appropriate for long-term accumulation versus active trading.