What Are Mutual Fund Holders?

Mutual fund holders are the investors who buy shares of a mutual fund, a pool of equities actively managed by a fund manager. The shareholders are part of a relatively complex organizational structure designed to facilitate investment, while providing considerable protection and government oversight.

What Investors Hold

When you buy shares of a mutual fund, you receive three principal benefits. The first is the market value of shares, called the net asset value of the underlying equities purchased by the fund's management on your behalf. These assets are pooled -- you don't own particular shares or fractions of particular shares. You own a percentage of all the shares held in the fund. In some instances, what you pay per share also includes a sales load charged by the broker, usually from 3 to 7 percent of the NAV.

Management Structure

When you hold fund shares, you also get the benefit of the fund's professional management team. Governing the fund are the fund's board of directors, which is directly responsible to the mutual fund holders, the investors in the fund. All other fund management divisions report to the board. These include the fund administrator, which handles various back-office functions; a fund sponsor, which oversees the organization of the fund under applicable law; and the fund's team of investment advisers, who buy and sell funds under the direction of a fund manager. In many cases, the sponsor and advisory team are part of the same management organization. There is also the fund's principal underwriter, a registered broker dealer that contracts with the fund to buy and sell shares to the public, and a transfer agent that keeps account records, distributes capital gains and dividends, and mails shareholders account and tax information.

Nongovernmental Oversight

In additional to professional management, when you buy shares of a fund, you also get the benefit of regulatory and fiduciary oversight. An independent public accountant firm audits all fund activity, and an independent custodian, usually a bank, holds fund assets and performs its own audit of fund activity. In most cases, the board of directors has its own internal auditor.

Governmental Oversight

The U.S. Securities and Exchange Commission performs regulatory oversight of the fund. Because the fund is registered with the state as a corporation or trust, there is state oversight as well. The complexity of the mutual fund's managerial and regulatory divisions, and the redundancy of private, state and federal oversight functions protect the fund's shareholders. While many funds lose money and some fail, there is no recorded instance of a fund's registered shareholders not getting back the market value of fund shares upon sale or when the fund is liquidated.

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About the Author

Patrick Gleeson received a doctorate in 18th century English literature at the University of Washington. He served as a professor of English at the University of Victoria and was head of freshman English at San Francisco State University. Gleeson is the director of technical publications for McClarie Group and manages an investment fund. He is a Registered Investment Advisor.

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