Flow of Funds: Overview of the Mutual Fund Market
Mutual Fund Shares
The Most Popular Collective Investment
Open-end mutual funds are financial products designed for individual investors (households).
These funds issue and redeem stock on demand at net asset value at the close of the day.
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Mutual funds maintain diversified portfolios and generally have no creditors other than amounts due for securities purchased and fees payable for the management of the fund.
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In order to be exempt from income tax, funds must distribute income to shareholders yearly.
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Except for a board of directors, the funds have no employees; most administrative expenses are covered by fees based on the size of the fund.
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Each fund sets forth a fundamental investment policy in its by-laws.
There are money market funds, bond funds, and stock funds.
Different Kinds of Stock Mutual Funds
Within these categories there are many varieties of funds.
For example, there are funds that invest in:
growth stocks, value stocks, high-dividend stocks, mid-cap stocks, large-cap stocks, small-cap stocks, index funds, global international funds, specific country funds, emerging market funds, and funds specializing in specific sectors, such as automotive, technology, baking, air transportation, health care, utilities, and so forth.
Money Market Mutual Funds Compete With Banks
Money market mutual funds are different from the other types of mutual funds, not only in the nature of their portfolios (short-term commercial paper and government securities), but also by the way that profits are distributed.
Mutual funds, like baseball, cater to the masses.Money market mutual funds distribute profits daily as fractional shares so that the net asset value of the fund always stays at one dollar.
Other mutual funds allow net asset value to fluctuate and distribute cash dividends at longer intervals.
Funding Corporations
Money market mutual funds also have funding corporations as major buyers.
Funding corporations are financial entities associated with foreign banks or non bank holding companies, and custodial accounts for reinvested collateral associated with securities lending operations.
