Diversified Mutual Funds

Diversified mutual funds allocate varying amounts of money over a range of securities. This is a legal necessity in which diversified mutual funds are constrained to maintain this diversification of fund investments. The major reason for such a law is to protect the interests of the public who invests in these diversified mutual funds. Investment management companies operate the mutual funds and also must be subject to the regulation and supervision of the Securities and Exchange Commission or SEC.

In a diversified mutual funds allocation, the risks of investment losses are reduced by the shareholders’ investments being spread over many shares or securities. Thus, not one or even a few securities will totally wipe out an investor’s funds. The investor can invest the minimal of amounts in a wide range of stocks which certainly limit his risks of losing his investment and increase the potential for his earning better returns. He can invest in diversified mutual funds which are widely diversified or he can invest in a portfolio of mutual funds that are spread over various sectors, such as pharmaceuticals, utilities, or biotechnology.

The regulatory diversification was established after the Stock Market Crash of 1929 when many mutual funds had too much control over securities and thousands lost their investments in the funds. In the Securities Act of 1933, federal regulations dictated the way that securities were registered. Another law, the Securities Exchange Act of 1934 set up rules that related to the trading of securities. Furthermore, the Investment Company Act of 1940 had established further regulations for investment management companies that dealt with mutual funds. This legislative act ensured that these companies would serve the public’s best interests according to set high standards. Diversified mutual funds are a result of that particular legislation.

Today, certainly more individuals in the United States own diversified mutual funds. The numbers of people who do own them have increased dramatically to more than ninety-two million, which makes up approximately forty-five percent of all American households. The majority of these mutual funds exist in the401K employer-sponsored retirement plans of these individuals.

The diversified mutual funds will certainly charge fees for the management and operation of the mutual funds. Often, an investor may have to pay a sales charge when he first buys shares or stocks in the funds. In other funds, a contingent deferred sales charge may be assessed when the investor decides to sale his fund shares. The fees charged the investor are minor in comparison with the benefits of having invested in diversified mutual funds. With these funds, the investor is more confident of the security of his investment.