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    Features of Actively and Passively Managed Mutual Funds

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    Mutual funds have to offer many features as investment vehicles:
    1. Describe the basic features of mutual funds, and note what they have to offer as in-vestment vehicles.
    2. Explain the difference between actively and passively managed mutual funds. Which ones would you prefer? Please explain.

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    Solution Preview

    1. Mutual funds are generally publicly-available portfolios of securities. They are registered with the Securities and Exchange Commission; are available to the general public with low minimum investment amounts; are generally managed by large portfolio management firms; report their net asset values daily; and report their portfolio compositions, expenses, and performance to their investors at least annually. They may be actively managed (i.e., the portfolio is overseen and traded by the manager on a regular basis) or passive (i.e., invested in a set portfolio which changes infrequently, if at all). They may be well-diversified (i.e., invested in many different types of securities, including "hard assets" and derivatives) or undiversified (i.e., invested in ...

    Solution Summary

    This solution describes the basic features of mutual funds, and note what they have to offer as investment vehicles. It then explains the difference between actively and passively managed mutual funds, and states which ones the author would prefer and why.

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