1. THE STOCK MARKET
GAME
UNIT 2: Into the Game
Lesson 2: What Is a Mutual
Fund?

2. Lesson 1: What is a Mutual Fund?
 Before you begin, do a “save-as” to
your group file. 

3. Background:
 Mutual fund companies are investment companies that pool
savers’ money to invest in a variety of stocks and bonds.
 Most funds have professional managers who actively buy and
sell stocks or bonds based on what they think is best for
shareholders. The expenses of managing the fund are
subtracted from the fund’s assets (net worth) annually.
 Investors cannot buy mutual fund shares on margin or sell
them short.
 Investors have many choices of mutual funds. Some invest
only in stocks, while others invest only in bonds. Still others mix
or balance both stocks and bonds. When selecting a fund,
investors can pick among three general types of funds as
shown on the next slide.

4. Exchange Traded
Mutual Funds Closed-End Funds
Funds (ETFs)
Most have professional managers ETFs are not actively managed These funds are actively managed, just
who actively buy and sell stocks or but are index funds that closely like most mutual funds.
bonds based on what they think is follow indexes of stocks or
best for shareholders. A few are bonds. There are very few bond
index funds, which are not actively ETFs.
managed.
Investors trade with the fund, not A fixed number of shares are The number of shares issued by the fund
with one another. So the number of issued, which investors trade remains fixed. Investors trade these
shares held by investors is open- with one another, not with the shares with one another, not with the fund.
ended, not fixed. fund. However, the fund can
increase or decrease this fixed
number of shares.
Orders can be placed any time Shares trade just like stocks. Shares trade just like stocks. They can be
during the day but are completed They can be traded at any time traded at any time during the market’s
only at closing prices after the during the market’s trading trading hours.
market closes at the end of the hours.
trading day.
A share’s price equals the fund’s net A share’s price rises and falls A share’s price rises and falls according
asset value (NAV), which is the total according to investors’ supply to investors’ supply and demand.
value of the fund’s investments (less and demand.
liabilities) divided by the number of
shares investors hold.

5. Vocabulary:
 Bonds: An IOU that a company or government sells
when it borrows money. Bonds are called fixed-income
investments because they pay a fixed amount of
interest to the bondholder who purchased this IOU.
 Diversification: Reducing risk by combining deferent
investments whose prices aren’t likely to move in step
with one another.
 Mutual funds: An investment company that pools
savers’ money to invest in a variety of stocks and
bonds. Professionals who research companies and buy
or sell stocks actively manage them based on what
they think is best for the shareholder.

6. Springboard Activity:
 Look at the items on the table.
 What do you think would be the easiest way to deliver these
items to the class next door?
 Try to carrying them all in your hands.
 Now place the items in a bag or basket.
 Why is that an easier way to carry the items?
 Sometimes putting things together makes them easier to
manage and keep track of. Some investors want to make one
purchase but buy several different stocks.
 Thus you get Mutual Funds.

7. Springboard activity continued…
 Like putting the items in a basket makes them easier to carry,
purchasing a mutual fund makes buying a variety of stocks
easier to purchase and manage, since a professional mutual
fund manager actually decides when to buy and sell stocks
within the mutual fund for shareholders of the fund.
 Why should SMG teams consider mutual funds while creating
their portfolios and list possible reasons the students might
want to include them.

8. Activities….
 All Levels:
 Read Stock Talk Vol. 15, No. 1: Fund Seekers
read the “Seek and Squeak” portion.
 Why mutual funds might be a good investment?
 Discuss the question among yourselves. Write the
reasons you would consider purchasing mutual
funds.
 Visit http://finance.yahoo.com/funds/
 Research the different mutual funds, note the
different fund styles or size of the companies, market
cap, growth funds, and value funds.
 Complete Activity sheets 1 & 2

9. ASSESMENT! **You need to
complete this individually!!!
 Read Stock Talk Vol.15, No.2. : Navigator to SMG
teams and have them read about mutual fund NAVs.
 Visit http://finance.yahoo.com/funds
 Practice looking up the NAV for various funds.
 If you need assistance choosing a fund, you may locate
a list of mutual fund families at:
http://biz.yahoo.com/p/fam/a-b.html
 If you bought the stock how would you want the NAV to
change over time?
 Since you’ve researched mutual funds, write a
recommendation for your team

10. Lesson 3 Activity Sheets &
Assessments
• Correct Activity Sheets. See me for
binder w/answers. Be sure to make any
corrections using RED pen.
• We’ll meet @ noon to review work