Investments, tenth edition

   Investment Policies 

 Each mutual fund has a specified investment policy, which is described in the fund’s pro-

spectus. For example, money market mutual funds hold the short-term, low-risk instru-

ments of the money market (see Chapter 2 for a review of these securities), while bond 

funds hold fixed-income securities. Some funds have even more narrowly defined man-

dates. For example, some bond funds will hold primarily Treasury bonds, others primarily 

mortgage-backed securities. 

 Management companies manage a family, or “complex,” of mutual funds. They orga-

nize an entire collection of funds and then collect a management fee for operating them. 

By managing a collection of funds under one umbrella, these companies make it easy 

for investors to allocate assets across market sectors and to switch assets across funds 

while still benefiting from centralized record keeping. Some of the most well-known man-

agement companies are Fidelity, Vanguard, Barclays, and T. Rowe Price. Each offers an 

array of open-end mutual funds with different investment policies. In 2013, there were 

nearly 8,000 mutual funds in the U.S., which were offered by a bit more than 700 fund 

complexes. 

 Funds are commonly classified by investment policy into one of the following groups.