A mutual fund is an investment fund that pools money from many investors to purchase securities . The term is typically used in the United States , Canada , and India , while similar structures across the globe include the SICAV in Europe ('investment company with variable capital'), and the open-ended investment company (OEIC) in the UK.
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82-436: A mutual fund , a UIT is created for a specific length of time and is a fixed portfolio: its securities will not be sold or new ones bought except in certain limited situations (for instance, when a company is filing for bankruptcy or the sale is required because of a merger ). Stock trusts are generally designed to provide capital appreciation and/or dividend income. They usually issue as many units (shares) as necessary for
123-409: A limited life span, established at creation. Investors can redeem shares directly with the fund at any time (similar to an open-end fund) or wait to redeem them upon the trust's termination. Less commonly, they can sell their shares in the open market. Unlike other types of mutual funds, unit investment trusts do not have a professional investment manager. Their portfolio of securities is established at
164-496: A modern mutual fund was the Boston Personal Property Trust that was founded in 1893; however, its original intent was as a workaround to Massachusetts law restricting corporate real estate holdings rather than investing. Early U.S. funds were generally closed-end funds with a fixed number of shares that often traded at prices above the portfolio net asset value . The first open-end mutual fund with redeemable shares
205-454: A mutual fund. Because individual UITs are assembled and purchased for specific periods of time, the cost basis consists of the initial purchase price of the securities held in the trust. A mutual fund, on the other hand, taxes the individual based on the entire previous tax year, regardless of the date purchased. An investor could, for example, purchase a mutual fund in October, absorb a loss during
246-644: A mutual recognition regime that allows funds regulated in one country to be sold in all other countries in the European Union, if they comply with certain requirements. The directive establishing this regime is the Undertakings for Collective Investment in Transferable Securities Directive 2009 , and funds that comply with its requirements are known as UCITS funds. Regulation of mutual funds in Canada
287-480: A net asset value based on the value of the securities held in the funds. In the United States, at the end of 2019, assets in money market funds were $ 3.6 trillion, representing 14% of the industry. Bond funds invest in fixed income or debt securities. Bond funds can be sub-classified according to: In the United States, at the end of 2019, assets in bond funds (of all types) were $ 5.7 trillion, representing 22% of
328-416: A set period of time before their primary offering period closes. Equity trusts have a set termination date, on which the trust liquidates and distributes its net asset value as proceeds to the unitholders. (The unitholders may then have special options for the reinvestment of this principal.) Bond trusts issue a set number of units, and when they are all sold to investors, the trust's primary offering period
369-449: A substitute for bank savings accounts , though money market funds are not insured by the government, unlike bank savings accounts. In the United States, money market funds sold to retail investors and those investing in government securities may maintain a stable net asset value of $ 1 per share, when they comply with certain conditions. Money market funds sold to institutional investors that invest in non-government securities must compute
410-522: A trust named Eendragt Maakt Magt ("unity creates strength"). His aim was to provide small investors with an opportunity to diversify. The first investment trust in the UK, the Scottish American Investment Trust formed in 1873, is considered the "most obvious progenitor" to the mutual fund, according to Diana B. Henriques . One of the earliest investment companies in the U.S. similar to
451-415: Is closed. Bond trusts pay monthly income, often in relatively consistent amounts, until the first bond in the trust is called or matures . When this occurs, the funds from the redemption are distributed to the clients via a pro-rata return of principal. The trust then continues paying the new monthly income amount until the next bond is redeemed. That continues until all the bonds have been liquidated out of
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#1733105557861492-466: Is now called the "Vanguard 500 Index Fund" and is one of the largest mutual funds. Beginning the 1980s, the mutual fund industry began a period of growth. According to Robert Pozen and Theresa Hamacher, growth was the result of three factors: The 2003 mutual fund scandal involved unequal treatment of fund shareholders whereby some fund management companies allowed favored investors to engage in prohibited late trading or market timing . The scandal
533-636: Is primarily governed by National Instrument 81-102 "Mutual Funds", which is implemented separately in each province or territory. The Canadian Securities Administrator works to harmonize regulation across Canada. In the Hong Kong market mutual funds are regulated by two authorities: In Taiwan, mutual funds are regulated by the Financial Supervisory Commission (FSC). Mutual funds in India are regulated by Securities and Exchange Board of India ,
574-515: Is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and is classified as an investment company . UITs are assembled by a sponsor and sold through brokerage firms to investors. A UIT portfolio may contain one of several different types of securities. The two main types are stock (equity) trusts and bond ( fixed-income ) trusts. Unlike
615-507: Is targeted at different investors, with hedge funds being available only to high-net-worth individuals. At the end of 2020, open-end mutual fund assets worldwide were $ 63.1 trillion . The countries with the largest mutual fund industries are: At the end of 2019, 23% of household financial assets were invested in mutual funds. Mutual funds accounted for approximately 50% of the assets in individual retirement accounts, 401(k)s and other similar retirement plans. Luxembourg and Ireland are
656-539: The net asset value (NAV) computed that day based upon the prices of the securities owned by the fund. In the United States, open-end funds must be willing to buy back shares at the end of every business day. In other jurisdictions, open-end funds may only be required to buy back shares at longer intervals. For example, UCITS funds in Europe are only required to accept redemptions twice each month (though most UCITS accept redemptions daily). Most open-end funds also sell shares to
697-495: The United States Hidden categories: Articles needing additional references from July 2022 All articles needing additional references Mutual fund Mutual funds are often classified by their principal investments: money market funds , bond or fixed income funds , stock or equity funds , or hybrid funds. Funds may also be categorized as index funds , which are passively managed funds that track
738-429: The United States, the principal laws governing mutual funds are: Mutual funds are overseen by a board of directors if organized as a corporation, or by a board of trustees , if organized as a trust. The Board must ensure that the fund is managed in the interests of the fund's investors. The board hires the fund manager and other service providers to the fund. The sponsor or fund management company often referred to as
779-488: The creation of the UIT. In the United States, at the end of 2019, there were 4,571 UITs with combined assets of less than $ 0.1 trillion. Closed-end funds generally issue shares to the public only once, when they are created through an initial public offering . Their shares are then publicly listed. Investors who want to sell their shares must sell their shares to another investor in the market; they cannot sell their shares back to
820-463: The development of open-end mutual funds (as opposed to closed-end funds). In 1936, U.S. mutual fund industry was nearly half as large as closed-end investment trusts. But mutual funds had grown to twice as large as closed-end funds by 1947; growth would accelerate to ten times as much by 1959. In terms of dollar amounts, mutual funds in the U.S. totaled $ 2 billion in value in 1950 and about $ 17 billion in 1960. The introduction of money market funds in
861-431: The fund manager, trades (buys and sells) the fund's investments in accordance with the fund's investment objective. Funds that are managed by the same company under the same brand are known as a fund family or fund complex. A fund manager must be a registered investment adviser . In the European Union, funds are governed by laws and regulations established by their home country. However, the European Union has established
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#1733105557861902-442: The fund's investment objective, investment approach and permitted investments. The investment objective describes the type of income that the fund seeks. For example, a capital appreciation fund generally looks to earn most of its returns from increases in the prices of the securities it holds, rather than from dividend or interest income. The investment approach describes the criteria that the fund manager uses to select investments for
943-442: The fund. Bond, stock, and hybrid funds may be classified as either index (or passively-managed) funds or actively managed funds. Alternative investments which incorporate advanced techniques such as hedging known as "liquid alternatives". Money market funds invest in money market instruments, which are fixed income securities with a very short time to maturity and high credit quality. Investors often use money market funds as
984-427: The fund. The price that investors receive for their shares may be significantly different from NAV; it may be at a "premium" to NAV (i.e., higher than NAV) or, more commonly, at a "discount" to NAV (i.e., lower than NAV). In the United States, at the end of 2019, there were 500 closed-end mutual funds with combined assets of $ 0.28 trillion. Mutual funds may be classified by their principal investments, as described in
1025-570: The high-interest rate environment of the late 1970s boosted industry growth dramatically. The first retail index funds appeared in the early 1970s, aiming to capture average market returns rather than doing detailed company-by-company analysis as earlier funds had done. Rex Sinquefield offered the first S&P 500 index fund to the general public starting in 1973, while employed at American National Bank of Chicago. Sinquefield's fund had $ 12 billion in assets after its first seven years. John "Mac" McQuown also began an index fund in 1973, though it
1066-428: The industry. Stock or equity funds invest in common stocks . Stock funds may focus on a particular area of the stock market, such as Unit investment trust In U.S. financial law, a unit investment trust ( UIT ) is an investment product offering a fixed (unmanaged) portfolio of securities having a definite life. Unlike open-end and closed-end investment companies, a UIT has no board of directors. A UIT
1107-958: The issuer at the net asset value of each share as of the close of the trading day in which the order was placed, as long as the order was placed within a specified period before the close of trading. They can be traded directly with the issuer. Mutual funds have advantages and disadvantages compared to direct investing in individual securities. The advantages of mutual funds include economies of scale , diversification, liquidity, and professional management. As with other types of investment, investing in mutual funds involves various fees and expenses . Mutual funds are regulated by governmental bodies and are required to publish information including performance, comparisons of performance to benchmarks, fees charged, and securities held. A single mutual fund may have several share classes, for which larger investors pay lower fees. Hedge funds and exchange-traded funds are not typically referred to as mutual funds, and each
1148-559: The last quarter of the year, and still be taxed on capital gains within the fund, depending on the overall performance of the underlying securities from January 1 of the current year. A UIT avoids such potential tax consequence by assembling an entirely new "investment" for each individual investor. Some exchange-traded funds (ETFs) are technically classified as UITs: however, ETFs usually do not have set portfolios (they are either managed or update automatically to follow an index), and they can have lifetimes of over 100 years. For example,
1189-447: The performance of an index, such as a stock market index or bond market index , or actively managed funds, which seek to outperform stock market indices but generally charge higher fees. The primary structures of mutual funds are open-end funds , closed-end funds , and unit investment trusts . Over long durations passively managed funds consistently overperform actively managed funds. Open-end funds are purchased from or sold to
1230-439: The portfolio. The largest issuer of UITs is First Trust Portfolios . Other sponsors include Incapital , SmartTrust , Invesco Unit Trusts , Millington Securities , Advisors Asset Management and Guggenheim Funds . Most large brokerage firms (such as Merrill Lynch and LPL Financial ) sell UITs created by these sponsors. From a tax perspective, UITs offer a shelter from the unrealized capital gains taxes typical inside of
1271-533: The primary jurisdictions for the registration of UCITS funds. These funds may be sold throughout the European Union and in other countries that have adopted mutual recognition regimes. The first modern investment funds , the precursor of mutual funds, were established in the Dutch Republic . In response to the financial crisis of 1772–1773 , Amsterdam-based businessman Abraham (or Adriaan) van Ketwich formed
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1312-422: The prospectus and investment objective. The four main categories of funds are money market funds, bond or fixed-income funds, stock or equity funds, and hybrid funds. Within these categories, funds may be sub-classified by investment objective, investment approach, or specific focus. The types of securities that a particular fund may invest in are set forth in the fund's prospectus , a legal document that describes
1353-401: The public every business day; these shares are priced at NAV. Open-end funds are often referred to simply as "mutual funds". In the United States at the end of 2019, there were 7,945 open-end mutual funds with combined assets of $ 21.3 trillion, accounting for 83% of the U.S. industry. Unit investment trusts (UITs) are issued to the public only once when they are created. UITs generally have
1394-993: The regulator of the securities and commodity market owned by the Government of India, under the SEBI (Mutual Funds) regulations of 1996. The functional aspect of Mutual Funds industry comes under the purview of AMFI , a trade association of all fund houses. Formed in August 1995, the body undertook the Mutual Funds Sahi hai campaign in March 2017 for promoting investor awareness on mutual funds in India. There are three primary structures of mutual funds: open-end funds , unit investment trusts , and closed-end funds . Exchange-traded funds (ETFs) are open-end funds or unit investment trusts that trade on an exchange. Open-end mutual funds must be willing to buy back ("redeem") their shares from their investors at
1435-465: The trust. Bond trusts are generally appropriate for clients seeking current income and stability of principal. A UIT may be constituted as either a regulated investment company (RIC) or a grantor trust. A RIC is a trust, corporation or partnership in which investors have common investment and voting rights but do not have direct interest in investments of the investment company or fund. A grantor trust, in contrast, grants investors proportional ownership in
1476-642: The underlying securities. A UIT is created by a document called the Trust Indenture. This document is drafted by the Sponsor of the fund, and names the Trustee and the Evaluator. By US law, the Sponsor and the Trustee may not be the same. The sponsor selects and assembles the securities to be included in the fund. The trustee keeps the securities, maintains unitholder records, and performs all accounting and tax reporting for
1517-648: Was established on March 21, 1924, as the Massachusetts Investors Trust, which is still in existence today and managed by MFS Investment Management . In the U.S., there were nearly six times as many closed-end funds as mutual funds in 1929. After the Wall Street Crash of 1929 , the United States Congress passed a series of acts regulating the securities markets in general and mutual funds in particular. These new regulations encouraged
1558-581: Was incorporated in 1933, and while it still manages the Wellington Fund, it is a private firm, independent of Vanguard. See also [ edit ] The Vanguard Group Walter L. Morgan Wellington Management Company External links [ edit ] https://web.archive.org/web/20190815172840/http://www.vanguard.com/bogle_site/sp2004wellingtonbth.html Retrieved from " https://en.wikipedia.org/w/index.php?title=Wellington_Fund&oldid=1100820845 " Category : Mutual funds of
1599-517: Was part of a large pension fund managed by Wells Fargo and not open to the general public. Batterymarch Financial, a small Boston firm then employing Jeremy Grantham , also offered index funds beginning in 1973 but it was such a revolutionary concept they did not have paying customers for over a year. John Bogle was another early pioneer of index funds with the First Index Investment Trust, formed in 1976 by The Vanguard Group ; it
1640-560: Was the first balanced mutual fund in the United States, and is one of the oldest surviving mutual funds. It was established in 1928 by Walter L. Morgan with $ 100,000 raised from relatives and business people in Morgan's home state of Pennsylvania . It was originally called the Industrial and Power Securities Company, but was later renamed after the Duke of Wellington . Wellington Management Company
1681-645: Was uncovered by former New York Attorney General Eliot Spitzer and led to an increase in regulation. In a 2007 study about German mutual funds, Johannes Gomolka and Ralf Jasny found statistical evidence of illegal time zone arbitrage in trading of German mutual funds. Though reported to regulators, BaFin never commented on these results. Like other types of investment funds, mutual funds have advantages and disadvantages compared to alternative structures or investing directly in individual securities. According to Robert Pozen and Theresa Hamacher, these are: Mutual funds have disadvantages as well, which include: In