What are Mutual Funds?
A mutual fund is a common financial tool used by investors to pool money together to collectively invest in stocks, bonds, and other assets. Mutual funds are operated and managed by a professional fund manager. Their job is to allocate the fund’s assets and are responsible to invest appropriately in order to produce capital gains. If the mutual funds are invested well, there is a high financial reward. A mutual fund’s portfolio is structured and upholded based on objectives stated in its prospectus.
Mutual funds give individuals access to a professionally managed portfolio of bonds, equities, or other securities. If part of a mutual fund, each shareholder will participate and receive gains or losses of the funds proportionally. Mutual fund investment performances are tracked by the total market cap of the fund.
Mutual Fund Fraud
Stockbrokers receive a commission if they convince a client to invest in a mutual fund. Stockbrokers have the responsibility to not mislead their clients. Fraudulent brokers will use their commission to commit breakpoint fraud. Breakpoint fraud is when a broker convinces their client to invest in an unbeneficatory way in order for them to receive a higher commission.
Commission of high cost funds tends to be higher. However high cost funds might not be advantageous to the client (not lead to a higher return on the investment). Thus, a fraudulent broker might convince clients to buy high cost funds even if they are disadvantageous.
When it comes to investing in mutual funds, investors must hire a reputable advisor who they can trust.