Do Large Investors buy Mutual Funds?

Many large investors use mutual funds to solve at least some of their investment problems. It's not at all unusual for big investors (whether corporate or private) to place multimillion-dollar investments into mutual fund accounts. As a matter of fact, institutional investors alone account for more than forty percent of all fund assets. Why do these entities put their money into mutual funds? They basically do it for many of the same reasons that small investors do.

One of the most important reasons why major investors choose mutual funds is the ready accessibility of past performance records. No other form of investment management can provide prospective clients with such a complete picture of what it's achieved in the past. The investor can easily see how well any mutual fund manager has handled the funds in his or her care and determine if those results are suitable for the investor's own needs. Another important aspect is a mutual fund's clearly stated position regarding its objectives, policies and investment holdings, along with a description of how its management goes about implementing them.

For all large investors, the convenience of owning shares in one or a few mutual funds is also an important benefit. This is easy to understand when contrasted with the position of owning individual shares of stock in many companies, collecting dividends on each, and having to keep records of every transaction. Just problem of recordkeeping alone is substantially minimized by owning mutual funds.

Another benefit enjoyed by large investors is the complete liquidity that mutual funds provide. A portion (or the entire amount) of a fund investment can be liquidated quickly and with no concern about disrupting the market in a particular stock or bond. Additionally, with no-load funds, investors can move their money into and out of the market at no cost. There's no commission charged to buy or sell (in most cases) and no minimum period of time that the investment must remain in effect. Investors have virtually complete flexibility in the handling of their money.

Large and experienced investors have come to understand and appreciate the benefits of being diversified. Not only can an investor enjoy the advantages of diversification provided by one mutual fund, he or she can also diversify even further by spreading assets over several different offerings. This provides the additional safety of multiple managers, each of whom is governed by his or her own set of investment objectives and policies. Different managers, objectives and policies will provide varying results in different economic and market climates, further reducing the exposure risks of a large (or small) account. And it can't be discounted that even experienced investors often reach the point where they simply no longer want the responsibility of managing their own investments. They may desire the peace of mind that comes from letting someone else handle all the concerns; and after all, fund managers get paid to do it.

Mutual fund shares have become increasingly accepted as prudent forms of investment for trust accounts. This has been especially true with the advent of money-market funds and with the growing acceptance of common stocks as suitable investments for trusts. The use of mutual funds answers the need for careful selection, adequate diversification and diligence that are essential to prudent investing in stocks and bonds. Many trustees – whether individuals or small institutions – lack the time, background or expertise necessary to invest prudently. In addition to that, numerous small trusts simply don't have sufficient assets with which to properly diversify.

For pension, 401(k), and profit-sharing plans, mutual funds also offer significant advantages. The fiduciary responsibilities implicit in these plans are similar to those faced by trustees. With mutual funds, corporate officers can maintain control over their company's plans while at the same time fulfilling those fiduciary obligations. They can obtain the particular investment objectives and policies set forth by their plans and meet IRS requirements for maintaining the plans' tax-exempt status.

Among the largest investors in mutual funds are schools, colleges, foundations, hospitals, religious organizations, libraries, unions, and fraternal associations. Such institutions often don't have qualified personnel to handle the proper investment of their funds. However, even when they do, they often find it more convenient and prudent to utilize mutual funds for the same reasons that other large investors find advantageous – clearly defined investment objectives and policies, diversification, sound investment management.

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