Mutual Funds

Mutual Funds

Mutual funds are a collection of investments. Typically, a money manager will organize a pooled portfolio to invest collectively in stocks, bonds and money market securities. The fund’s aim is to make money to the investors who placed their capital into the portfolio. The goals of the mutual fund are generally stated in its prospectus. Mutual funds may also be called ‘investment companies’ or ‘registered investment companies’. Like in the case of all financial instruments, there are both pros and cons to investing in mutual funds. However, in today’s economy, they represent an important part of household finances and often contribute to retirement planning.

One of the problems faced by many small investors is that they do not have enough capital to invest. Indeed, common wisdom indicates that you have to have money in order to make money. However, mutual funds allow investors with less capital to participate in certain professionally managed funds, to which they would not have access individually.

New York, Manhattan. Photograph by Megan Jorgensen

An important distinction between hedge funds and mutual funds is that the latter are sold publicly, whereas the former are not. As far as the United States of America are concerned, mutual funds must be registered with the Securities and Exchange Commission (SEC). The SEC is an agency of the United States federal government regulating the securities industry. The SEC was created in 1934 with the Securities Exchange Act of 1934. The SEC’s main functions are to protect investors, ensure efficient markets and maintain an environment conducive to capital formation.

Thus, to sum up, a mutual fund is a professionally managed investment fund pooling money from several investors. A hedge fund is an investment vehicle which also pools monetary resources from several investors, but is quite different from a mutual fund, and a detailed discussion of hedge funds lies beyond the scope of the present essay.