Mutual Funds

Mutual Funds


According to the Investment Company Institute (ICI), a mutual fund is typically organized under state law as a business trust (which is sometimes known as a statutory trust), or a corporation. Funds that are operated as business trusts are administered by trustees. Those set up as a corporation are managed by officers and directors.  

Mutual fund companies, or sponsors, are typically organized in states that have laws that are most favorable to business. At year-end 2018, the most popular form of organization was the Delaware statutory trust (which was utilized by 40 percent of mutual fund organizations). Thirty-seven percent of funds were organized as Massachusetts business trusts, 16 percent as Maryland business trusts, and 9 percent as other types (e.g., limited liability partnerships or in other domiciles, such as in Minnesota).   

Mutual fund companies are really “shell companies.” The ICI reports that “unlike other companies, a mutual fund is typically externally managed; it is not an operating company and it has no employees in the traditional sense. Instead, a fund relies upon third parties or service providers—either affiliated organizations or independent contractors—to invest fund assets and carry out other business activities.”

A mutual fund company must register with the Securities and Exchange Commission as an “investment company,” as directed by with the Investment Company Act of 1940. 

The mutual fund industry has a sophisticated array of distribution channels. Fidelity Investments, T. Rowe Price, and other big mutual fund complexes (i.e., families of mutual funds that are managed by the same company) sell directly to individual investors through an in-house sales force, through mutual fund supermarkets (i.e., distribution channels that give investors and investment advisors access to hundreds of different funds; examples include Charles Schwab, Fidelity, and T.D. Ameritrade), or through securities broker-dealers and financial planners (e.g., Capital Group). Smaller fund companies market their funds directly to the public or through their relationships with financial planners or broker-dealer firms such as Merrill Lynch or Edward Jones. Financial planners and broker-dealer firms receive a sales commission for their efforts.

Approximately 178,000 people worked for U.S. investment companies in 2017, according to the ICI. In March 2017, 39 percent of investment company employees worked in fund management functions such as investment research, information systems and technology, trading and security settlement, and related areas. Twenty-eight percent of workers provided services to fund investors and their accounts, handling duties such as working in call centers to help new investors open accounts and existing investors monitor and make changes to their accounts. Twenty-four percent of workers had jobs in sales, marketing, product development and design, and investor communications. Ten percent of investment company workers had fund administration responsibilities (e.g., regulatory compliance, financial and portfolio accounting and auditing, data processing, risk management, producing prospectuses and financial statements for shareholders etc.).

Characteristics of Mutual Fund Investors

In 2018, 44.8 percent of all U.S. households (or an estimated 101.6 million people) owned mutual funds, according to the ICI. Among households owning mutual funds, the median amount invested was $150,000. Forty-five percent of all mutual fund assets were owned by Baby Boomers. Households headed by a member of Generation X (those born between 1965 and 1980) held 32 percent of all mutual fund assets. Millennial-led households (born between 1981 and 2004) owned 23 percent of mutual fund assets, and those in the Silent and GI generations (born between 1904 and 1945) owned 11 percent.

Forty-three percent of U.S. households with income of $75,000 or more owned mutual funds in 2018, according to data from the ICI and the U.S. Census Bureau. The percentages of households owning mutual funds declined by level of household income (as seen in the chart below).

  • $100,000 to $199,999: (in household income): 37 percent owned mutual funds
  • $75,000 to $99,999 (in household income): 17 percent
  • $50,000 to $74,999: 16 percent
  • $35,000 to $49,999: 8 percent
  • $25,000 to $34,999: 4 percent
  • Less than $25,000: 4 percent

Equity funds were the most commonly owned type of mutual fund in 2018; they were held by 88 percent of U.S. mutual fund–owning households. The next most-popular funds were money market funds (57 percent), followed by bond funds (44 percent), balanced funds (36 percent), and other types of funds (2 percent).