Mutual fund

Mutual fund

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.

Key features

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 $255 billion1  in assets across a diverse range of strategies.

Investor considerations

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.

  • Morningstar, as of December 31, 2022.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.


Seeking a mutual fund designed to smooth portfolio returns?

Search our site