Topic 12: What are advantages of mutual funds over individual investors of corporate securities?

*) A mutual fund is a company that invests on behalf of its shareholders. People purchase shares of the mutual funds, and the company pools the money of all these people. The company invests the pooled money in a variety of securities, including stocks, corparate bonds and government bonds. Income earned by the fund is distributed to the shareholders in accordance with the number of shares they own.

*) The advantages of mutual funds include:

1.Professional management. The employees of a mutual fund are trained to study financial information, economic trends and political developments. Few investors have the time or expertise to do this.

2. Diversification: To reduce the risks of ownership, mutual funds invest in a wide variety of stocks and bonds.

3. Liquidity: A mutual fund investment can be turned into cash quickly and easily.

  However, mutual funds are not risk-free. Generally, funds that invest in government securities carry less risk than the ones that invest in corporate stocks. In addition, many different companies sell mutual funds. Some of these companies are better managed than others. So even when investing in mutual funds, investigate before you invest.

Topic 13: What are purposes of taxes? How are taxes collected?

a) Purposes of taxes

A tax is a payment to government that is required by the law.

-purpose of taxes: + People have to pay taxes such as income taxes, excise taxes, sales taxes, payroll taxes, property taxes,etc for government. + /government have money for spending on education, defense, medicine and other public services. + curb inflation (ex: excise taxes). + Limit export goods and protect domestic goods. + Government pay for social insurance programmes, pensions and unemployment insurance. è taxes are major sources of government income

b) How are taxes collected?

*) Indirect taxes: (V.A.T, turnover tax (taxes on retail prices and prices charge by manufacturers and wholesalers). An indirect tax is one that can be passed on or shifted, to some one other than person making payment to the government. In the case of the property tax, landlords pass its costs to tenants in the form of higher rents. A tariff is another example of an indirect tax. Although the tariff is paid by the seller to the federal government, this tax can be-and is-passes on to consumers in the form of higher prices.

*) Direct taxes:  (income taxes, inheritance taxes, estate taxes) Unlike indirect taxes, a direct tax is paid by taxpayers who can not pass the cost to others. The income tax, the sale tax, the inheritance taxes and estate taxes are examples of direct taxes. Those who pay a direct tax know exactly when and how much they are being taxed.

Topic 14: What effects does a tax have on tax payers?

*) Progressive taxes: A tax that takes a larger percentage of a person’s total income as that income increases is a progressive tax (Income taxes are charged as a percentage of an individual’s earnings. But not everything that a taxpayer earns is subject to this tax.)

Ex: Taxable income           $ 5,000     10,000      20,000

       Tax rate (percent)            6              10              15

       Tax owed                     $299           1,308     3,054

*) Regressive tax: A tax that takes a larger proportion from a taxpayer with a low income than from a taxpayer with a high income is a regressive tax. Ex: ranging from $5,000 to $100,000 per annum had to pay the same amount of $1,000 tax.

*) Proportional taxes: also called flat-tax. A tax that requires all persons to pay the same percentage of their total income in taxes is a proportional tax.

Ex: Taxable income     $5,000      10,000          20,000

     Tax rate (percent)  10                10                  10

     Tax owed                  $500           1,000           2,000