What is a mutual fund?
Mutual funds are investment companies that pool the assets of shareholders to invest in securities such as stocks, bonds and short-term money market instruments. Also known as open-end investment companies, mutual funds provide certain advantages to individuals, such as providing access to a diversified, professionally managed portfolio of securities with low investment minimums and a high level of regulatory oversight.
Mutual funds are regulated under the Investment Company Act of 1940, which requires they register as investment companies with the U.S. Securities and Exchange Commission. The act also set standards for disclosing financial information, the pricing of shares and other requirements meant to increase transparency into mutual fund holdings, operations and performance.
Mutual funds offer daily liquidity, with investors buying or selling their shares at the end of the day based on the fund’s net asset value, or NAV. A fund’s NAV is calculated by dividing the total value of the securities in the portfolio by the total amount of shares outstanding.
They also typically have low investment minimums, giving individual investors access to professionally managed portfolios of stocks, bonds or other securities for a relatively low initial dollar amount.
What are “liquid alts”?
Liquid alternatives, or liquid alts, refer to daily liquid open-end funds, such as mutual funds and exchange-traded funds, that invest across a broad range of alternative investment strategies. Liquid alts manage approximately $367 billion¹ in assets across a diverse range of strategies.
When investing in mutual funds, financial professionals and their investors should first consider the individual’s financial objectives. Investment constraints such as risk tolerance, liquidity needs and investment time horizon should be taken into consideration. Certain strategies may be better portfolio diversifiers, while others may provide return enhancement potential. Diversification does not eliminate the risk of experiencing investment losses. Investing in mutual funds involves risk in addition to the normal risks associated with investing, including the risk that a shareholder may receive little or no return on their investment or that a shareholder may lose part or all of their investment. Past performance is no guarantee of future results.