This research examines the mutual funds segment of the investment market. Mutual funds are defined, and a brief history of mutual funds is presented. The entry of commercial banking institutions into the mutual funds market is reviewed, and the new competitive structure of the mutual funds market is described. Factors affecting the functioning of the mutual funds market are discussed, and projected changes in the market are reviewed.
Mutual Funds: Definition, Purpose, and Types
A mutual fund is a particular type of investment company. Specifically, a mutual fund is an open end investment company. An open end investment company is one that does not have a fixed amount of capital stock, and continues to sell additional shares to the public as demand warrants. The term mutual fund indicates that the investment company represents a mutual pooling of the investment funds of a large number of people.
There are many different types of mutual funds, such as growth funds, diversified funds, balanced funds, money market funds, and so forth. These fund types describe the types of securities held by the investment company. Thus, investors can select a fund that specializes in the types of investment vehicles with which they are comfortable.
Mutual funds may also be distinguished as either load or no load funds. A load fund charges a fee at the time of share purchase in the fund to cover selling and administrative expenses. A no load fund collects selling and administrative expenses out of the fund earnings. A load fund also collects a management fee; however, the load fund management fee is typically less than that of the no load fund. The load fee charges by a load fund is typically much higher than that associated with a common stock purchase from a broker. The load fee for a mutual fund, however, covers both the buying and the selling of the share in the mutual fund. While no load funds have an understandable appea...