Chapter 57. Mutual Funds

MORE THAN 50 MILLION AMERICAN HOUSEHOLDS, 44 percent, own mutual funds, according to the Investment Company Institute (ICI), the mutual fund trade group. Yet surveys show that most Americans still do not know what a mutual fund is or how it works.[12]

Since 1990, retirement plans at work have become one of the most common sources through which individuals invest in mutual funds. Indeed, many of today's mutual fund owners were introduced to mutual fund investing through 401(k) plans and other retirement plans at work. In 2007, 57 percent of households that owned mutual funds said they purchased their first fund through an employer-sponsored retirement plan, up from 47 percent in 1998, according to the ICI. In total, 24 percent of households' mutual fund holdings are held in employer-sponsored retirement plan accounts. About half of households that own mutual funds view these plans as their main fund purchase source.

A mutual fund pools the money of hundreds or thousands or even millions of different investors and invests it in stocks, bonds, money market instruments, and other securities. Each fund sets its own rules. The money each individual invests is pooled with that of all the other investors and used to purchase securities.

Thousands of mutual funds are available, each with a stated investment objective. That objective might be, "This fund seeks current income," which means the fund is designed for investors who need regular income from their investments, ...

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