MUTUAL FUND INVESTMENT PLAN

Mutual Fund Plan for Bonnie Smith



Mutual Fund Plan for Bonnie Smith

A Mutual Fund is an investment vehicle that pools money from various investors and then the whole investment is invested in certain mix of assets classes, which are stocks or equity, bonds, and short-term securities or money market securities. All of these asset classes are regulated by Security Exchange Commission of USA. A fund manager or mutual fund company is usually hired to manage the pool of investments i.e. they buy and sell securities on behalf on investors.

Objective No. 1

Introduction

Bonnie Smith is a HR manager at BC Ferries. She earns $80,000 per year before tax. She is a 50 years old lady and single. Her cash flow statement exhibits that she is currently standing at 30th September and she is willing to save for the next three months from her income that she saves after paying all her expenses in order to survive in any emergency situation.. It can be illustrated as;

Total Income for three months = 5000+5000+5000 = 15000

Total Expenses for three months = 3190+3190+3190 = 9570

Total Cash readily available for investing in Mutual fund = 15000-9570 = 5430

Recommendations

Bonnie can keep her funds for emergency situation in money market funds. Because these are short-term investments and one can easily earn from it in a short spam of time so Bonnie can get it back when she needs it. Money market securities are of high quality and consist of most conservative funds. The price of money market securities does not deviate at a greater extent mainly because money market securities consist of Bonds, which are secure and issued by US government mostly or financially stable companies. One's investment for emergency plan is secure in these funds because they do not involve high risk on principal. Money market funds also do not require higher investments in the beginning. These funds offer more interest as compare to interest offered by banks on saving account. Security Exchange commission regulates these funds so there is minimum danger involved pertaining to decrease in value of asset. For this purpose, fund manager may charge no-load commission and charge up to 0.15% to 0.50% annually, which is about $150.

Objective No. 2

Introduction

RRSP stands for Registered Retirement Saving Plan. It is a tool that allows saving certain portion of income in a pool of money that would be used after retirement. Its biggest advantage is that it facilitates investors to save tax on annual income as money contributed in RRSP plan is deducted from one's annual income. RRSP plan for Bonnie can be illustrated as;

Amount already Invested in RRSP by Bonnie = 240,000

Bonnie's Present Value of Contribution in RSSP per year = 10,000

Bonnie's Future Value of Amount in RRSP over a specific period of time = 800,000

Bonnie's Current Age = 50

Bonnie's Age at the time of desired FV of RSSP = 65

Time period of Investment = 15

Annual Rate of Return on RSSP contribution = 6% (Approximately)

Amount of Tax saved due to RRSP per year = $62400 ...