F122. Mutual Funds (Open-End Investment Companies)

Federal Reserve definition for F122 flow of funds table

Mutual funds are investment companies that purchase financial assets using funds obtained mainly through the issuance of shares.

Many of the funds have specific investment objectives, such as current income or capital appreciation and many specialize in a certain type of financial security, such as municipal securities, growth stocks, or stocks issued by companies in particular industries or areas of the world.

Funds have also tailored their operations to needs of different types of investors, with some offering low initial investment requirements, automatic investment by deduction from deposits, and regular newsletters giving information about current financial conditions; some funds are members of 'families' operated by the same management company, allowing shareholders to transfer their investments readily among funds that have different objectives and investment styles.

More than 5,000 mutual funds are currently operating in the U.S.

There are more than 5,000 mutual funds operating in the U.S.

They have become an increasingly popular form of investment among individual investors and, in the aggregate, appear to have become a substitute for directly held bonds, equity shares, and deposits.

Mutual funds are also known as open-end investment companies because they are permitted to issue an unlimited number of shares at net asset value.

The net asset value of an individual investor's share in a mutual fund is determined by the market value of the underlying assets.

Shareholders receive returns through pass-throughs of current interest and dividends, distributions of realized capital gains, and accumulation of unrealized capital gains.

In the flow of funds accounts, the mutual funds sector covers all open-end investment companies (including unit investment trusts) that report to the Investment Company Institute (ICI) except money market mutual funds and limited-maturity municipal bond funds (which make up the money market mutual funds sector shown in table F.122), and funding vehicles for variable annuities (which are included in the life insurance companies sector in table F.117).

The sector also excludes hedge funds.

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