Mutual Fund

A mutual fund refers to an investment company that pools together money from individual or institutional investors, who are called the shareholders of the mutual fund. Under the supervision of a Fund Manager (also called a Portfolio Manager), the collective assets are invested in securities, stocks, bonds and other financial instruments, or a combination of these. Through this, the pool of financial resources accrue profit, or incur losses. A management company conducts check and balance of the performance of a mutual fund company especially in the areas of accounting, regulations and taxation.

At a particular period, the mutual fund accounts for all its investment earnings, deducts the amount of its operations expenses and other shareholder fees from the total and awards the remaining profits (dividends) to its shareholders in the form of distribution.

In the United States, mutual funds specifically refers to the so-called open-end funds, meaning an investment firm that sells and redeems shares anytime, as distinguished from UITs (Unit Investment Trusts) which sells shares on a one-time public offering and close-ended funds which issue only a fixed number of shares.

Mutual funds in the U.S. are not subject to tax as long as they distribute 90 percent of their profit among the shareholders, ensuring maximum gains for them. Likewise, they are a preferred mode to acquire employee retirement plans in the U.S., in partnership with employers through plans such as the 401 (k), 403 (b) and Individual Retirement Accounts (IRAs). The Investment Company Institute (ICI) is the recognized association of mutual fund investment companies in the U.S.