Introduction

A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in a variety of areas such as stocks, bonds, short-term money market instruments and other securities.

Since the 1940s, there have been three basic types of investment companies in the US. Namely, open-end funds also known as mutual funds; unit investment trusts; and closed end funds. This is also the case in Canada too. However, outside these countries, the term “mutual fund” is used as an umbrella term.

Its popularity has not waned in recent times despite the unpredictable nature of the credit crisis. According to the Investment Company Institute, more than 92 million individuals in the US alone owned mutual funds in 2008.

Key findings

• State of the market – The market is making an upbeat recovery from a tumultuous couple of years. Mutual funds offer an attractive option for investors. They are heavily regulated which brings certainty in this climate.
• What’s happening now – Interest in this sector is picking up. The DTCC announced it was developing a new capability to transfer mutual fund shares between fund companies and brokerage firms, banks and other distribution firms. In addition it has also launched the Managed Accounts Service Portal.
• Popularity stakes – Hedge funds took over in the popularity stakes in recent years but now there appears to be a switch back to mutual funds. This is due to a number of factors; one of them being the continued low interest rates.

Conclusion

While mutual funds have ultimately had a tumultuous couple of years, it is well on the road to making a good recovery and should not be seen as one of the victims of the credit crisis fiasco.

Mutual funds have proved popular in the past with investors because they adhere to the basic principals of investing which is not to put all eggs in one basket. If an investor puts all its money in to the stock of one company and that company files for bankruptcy, all the money invested is lost.

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