Do mutual funds own the underlying securities?
Investors own the fund's underlying investments
Mutual funds let you pool your money with other investors to "mutually" buy stocks, bonds, and other investments. They're run by professional money managers who decide which securities to buy (stocks, bonds, etc.) and when to sell them. You get exposure to all the investments in the fund and any income they generate.
Mutual fund custodians are responsible for securing and managing the securities held within a mutual fund. While a fund's portfolio manager makes trading decisions, the securities owned by the fund are held with the custodian and not directly with the fund itself.
A mutual fund effectively owns a portfolio of investments that is funded by all the investors who have purchased shares in the fund. So when an individual buys into a mutual fund, they gain part-ownership of all the underlying assets that fund owns.
Exchange-traded funds work like this: The fund provider owns the underlying assets, designs a fund to track their performance and then sells shares in that fund to investors. Shareholders own a portion of an ETF, but they don't own the underlying assets in the fund.
Mutual fund
Each investor owns shares of the fund and can buy or sell these shares at any time. Mutual funds are typically more diversified, low-cost, and convenient than investing in individual securities, and they're professionally managed.
You own the money and investments in your brokerage account, and you can sell investments at any time.
The combined securities and assets the mutual fund owns are known as its portfolio, which is managed by an SEC-registered investment adviser. Each mutual fund share represents an investor's proportionate ownership of the mutual fund's portfolio and the income the portfolio generates.
All investments carry some degree of risk and can lose value if the overall market declines or, in the case of individual stocks, the company folds. Still, mutual funds are generally considered safer than stocks because they are inherently diversified, which helps mitigate the risk and volatility in your portfolio.
The first modern mutual fund was launched in the U.S. in 1924. The oldest mutual fund still in existence is MFS' Massachusetts Investors Trust (MITTX), also established in 1924.
Do mutual funds publish their holdings?
Disclosures for Mutual Funds
The Securities and Exchange Commission (SEC) requires mutual funds to report the complete lists of their holdings on a quarterly basis since they are regulated investment companies.
- Equity mutual funds.
- Bond mutual funds.
- Short-term debt mutual funds.
- Hybrid mutual funds.
Like all securities, mutual funds are subject to market, or systematic, risk. This is because there is no way to predict what will happen in the future or whether a given asset will increase or decrease in value. Because the market cannot be accurately predicted or completely controlled, no investment is risk-free.
Mutual funds offer automatic investment plans and ETFs do not. These services facilitate regular contributions and allow investors a consistent way to grow their investments, especially for retirement.
ETFs and index mutual funds tend to be generally more tax efficient than actively managed funds. And, in general, ETFs tend to be more tax efficient than index mutual funds. You want niche exposure. Specific ETFs focused on particular industries or commodities can give you exposure to market niches.
Exchange traded funds (ETFs) remain a fraction of the total global financial market in both equities and fixed income, ranging from 4.4%-12.7% of equities and 0.4%-2.6% of fixed income assets by region.
The most common types of risks associated with investing in mutual funds are market risk, credit risk, liquidity risk, interest rate risk, and inflation risk; as a result, your mutual fund performance may suffer. You can manage your portfolio and avoid a slump by having a basic understanding of these risks.
Investing in shares means that you are investing directly in equity markets, while Mutual Fund investments mean a professional fund manager is investing for you in either equity funds or debt funds. Both forms of investments have their distinct advantages and disadvantages.
Stock-picking offers an advantage over exchange-traded funds (ETFs) when there is a wide dispersion of returns from the mean. Exchange-traded funds (ETFs) offer advantages over stocks when the return from stocks in the sector has a narrow dispersion around the mean.
Is it safe to keep more than $500,000 in a brokerage account? It is safe in the sense that there are measures in place to help investors recoup their investments before the SIPC steps in. And, indeed, the SIPC will not get involved until the liquidation process starts.
Why no one should use brokerage accounts?
If the value of your investments drops too far, you might struggle to repay the money you owe the brokerage. Should your account be sent to collections, it could damage your credit score. You can avoid this risk by opening a cash account, which doesn't involve borrowing money.
In the event of fraud or a scam, the layer of protection between the broker's bank account and your brokerage account means your brokerage funds won't ever be touched.
| Mutual fund | Assets under management |
|---|---|
| Vanguard 500 Index Fund Admiral Shares (VFIAX) | $851.2 billion |
| Fidelity 500 Index Fund (FXAIX) | $407.6 billion |
| Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) | $354.4 billion |
| Fidelity Government Money Market Fund (SPAXX) | $290 billion |
Vanguard isn't owned by shareholders. It's owned by the people who invest in our funds. Our owners have access to personalized financial advice, high-quality investments, retirement tools, and relevant market insights that help them build a future for those they love. That's the Value of Ownership.
| Mutual Fund | Assets | Minimum Investment |
|---|---|---|
| Vanguard 500 Index Fund Admiral Shares (VFIAX) | $457 billion | $3,000 |
| American Funds Growth Fund of America (AGTHX) | $252 billion | $250 |
| Fidelity Select Technology Portfolio (FSPTX) | $13 billion | None |
| JPMorgan Equity Premium Income Fund (JEPAX) | $6 billion | $1,000 |
