Mutual Funds

What is a Mutual Fund?

A mutual fund pools investors’ money and invests them in securities, such as bonds, stocks, short-term money market instruments, or other investments, that then become part of its portfolio. It is usually overseen by a registered investment advisor that is tasked with allocating the assets in the fund and trying to earn income for investors.

Investing in a mutual fund can give a retail investor a chance to get involved at a reasonable cost in a diversified portfolio of investments that is professionally managed. Not only that, but mutual fund investments tend to be liquid with shares redeemable at the investor’s discretion.

A mutual fund’s value will depend on how the securities in its portfolio perform, and its investors’ losses or gains will be proportionate to their participation. A few ways that mutual fund investors can make money:

  • Through dividends on stock and interest on the bonds in the mutual fund’s portfolio. This is known as dividend payments.
  • Via capital gains, which is when the fund sells securities that have seen a price increase.
  • By selling your mutual fund shares for profit in the market if the holdings in the fund have gone up in price and the fund manager has opted not to sell them. This is known as an increased Net Asset Value (NAV).
Examples of Different Types of Mutual Funds
  • Fixed-Income Funds: This investment type concentrates on investments that pay an established return rate and seeks to generate interest income.
  • Equity Funds: Invests primarily in stocks, such as small-cap stocks, mid-cap, stocks or large-cap stocks.
  • Balanced Funds: This type of mutual fund invests in a hybrid of asset classes that may involve stocks, money market investments, bonds, or even alternative investments.
  • Index Funds: With this kind of mutual fund, its manager will usually purchase stocks that correspond with a major market index.
  • Income Funds: These mutual funds involve themselves mostly in government and corporate debt that they then hold until maturity to generate income streams.
  • Money Market Funds: These are often comprised of short-term debt instruments that carry very little risk. Returns tend to be low and this type of mutual fund is considered very safe.
  • International/Global Funds: Investments must be located outside an investor’s home country.
  • Specialty Funds: This type of mutual fund includes funds that don’t fit into the other kinds of mutual funds, such as sector funds, regional funds, or ethical funds.
What are the Risks Involving These Investment Opportunities?
  • There may be high commissions and fees.
  • Returns may fluctuate depending on the mutual fund’s value.
  • Interest or dividend payments can be negatively affected by market conditions.
Mutual Fund Losses Caused by Misconduct or Negligence

Mutual fund fraud can occur causing investors significant losses. This may involve the fund’s money managers making poor investment choices, to their benefit but to the detriment of investors, or issuing misrepresentations and omissions about a mutual fund.

In recent years, mutual fund customers have suffered hundreds of millions of dollars in losses because they were sold more costly mutual fund class shares even though there were less expensive, comparable options available.

Or, they were not given certain discounts for their mutual fund purchases even though they were qualified to receive them. The SEC has imposed huge fines against a number of fund managers for the financial harm retail investors and institutional investors have suffered because of this.

Brokers and their broker-dealers also have been known to unsuitably recommend a mutual fund to a customer even when it is not a good fit for their investing profile, engage in excessive mutual fund trading and switching in investors’ accounts to avail of the fees that they can earn from these transactions, and for failing to conduct the proper due diligence into a mutual fund and its fund manager to make sure it is a safe investment.

When investors lose money because of broker negligence or misconduct, the firm and its registered representative can be held liable for the customer’s losses in Financial Industry Regulatory Authority (FINRA) arbitration.

Experienced Mutual Fund Arbitration Attorneys

For over 30 years, Shepherd Smith Edwards and Kantas (SSEK Law Firm at has helped retail investors, institutional investors, and high-net-worth individual investors in recovering their losses caused by broker misconduct or negligence. Our mutual fund arbitration lawyers have recovered many millions of dollars on behalf of our clients throughout the US. Call SSEK Law Firm at (800) 259-9010 or contact us online.

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