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Mutual funds, part I: reshaping the American financial system

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  • Peter Fortune
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    Abstract

    Since the mid 1980s the mutual fund industry has enjoyed explosive growth in the number of funds, the types of funds available, and total assets under management. Much of this growth is the result of the increasing convenience offered to owners of long-term assets. Mutual funds offer portfolio diversification and financial research unavailable to the individual investor. They do this in an economical way through economies of scale, and they provide liquidity not available to the owner of individual shares or debt instruments. It should come as no surprise that the proportion of equity and debt instruments held through mutual funds has risen relative to outright ownership.> This article provides a broad overview of the mutual fund industry, examining the mutual fund concept, mutual fund regulation, and taxation. The author discusses the direct and indirect costs of holding mutual fund shares, and he examines the growth, liquidity, and redemption experiences of mutual funds. He also looks at the relationship of mutual funds to financial market performance. He finds that mutual funds have been remarkably resilient institutions. Even during the stresses of 1987, industry liquidity remained sufficient to allow share redemptions without threatening the security markets.

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    Bibliographic Info

    Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

    Volume (Year): (1997)
    Issue (Month): Jul ()
    Pages: 45-72

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    Handle: RePEc:fip:fedbne:y:1997:i:jul:p:45-72

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    Keywords: Mutual funds;

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    1. Fuhrer, Jeffrey C & Moore, George R, 1995. "Monetary Policy Trade-offs and the Correlation between Nominal Interest Rates and Real Output," American Economic Review, American Economic Association, American Economic Association, vol. 85(1), pages 219-39, March.
    2. Peter Fortune, 1991. "The municipal bond market, Part I: politics, taxes, and yields," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Sep, pages 13-36.
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    Cited by:
    1. Peter Fortune, 1998. "Mutual funds, part II: fund flows and security returns," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Jan, pages 3-22.

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