There is no written rule that stipulates how much of a company a mutual fund can own. Instead, there are two major factors that determine the amount of a company a mutual fund can own: the rules of a mutual fund and the fund's objectives.

A fund's prospectus usually dictates theamount of a company's stock that a mutual fund owns. Mutual funds usually have set rules and restrictions that dictate the amount of a company's stock that a mutual fund manager can buy for the portfolio. If the rules and restriction of the mutual fund sets the limit at 10%, then a mutual fund manager may only purchase up to 10% of a company's stock. In the event that the mutual fund does not have a set rule, the mutual fund manager has to make a judgement about the amount of stocks to buy. However, due to the risky nature of stocks, the mutual fund manager has to make sure that he/she chooses a conservative percentage of stocks.

Another factor that determines the amount of company stocks a mutual fund can own is the objective of the fund. If a mutual fund is an aggressive growth fund or a growth income fund, then that fund is going to own more stocks than a mutual fund that is a bond fund or a money market fund.

To learn more, see Picking The Right Mutual Fund.

This question was answered by Chizoba Morah.

  1. How do you find out the price of a mutual fund?

    The easiest way to find out the price of a mutual fund is to look at its net asset value (NAV). NAV is the total value of ... Read Answer >>
  2. How do I calculate the loan-to-value ratio using Excel?

    Learn what a mutual fund and a money market fund are, and understand the differences between each and how they serve various ... Read Answer >>
  3. How do I judge a mutual fund's performance?

    Evaluate mutual fund performance utilizing resources such as Morningstar; compare the fund with others in its peer group ... Read Answer >>
  4. Why is it that when investors realize returns on a mutual fund, its price tends to ...

    Mutual funds have been in existence since 1924, when the first open-ended mutual fund was created. Since then, the market ... Read Answer >>
  5. Can you place a stop-loss order on a mutual fund?

    First, remember that a stop-loss order is a limit order placed with a broker to sell a stock when it reaches a certain price. ... Read Answer >>
Related Articles
  1. Financial Advisor

    A Mutual Funds Guide for Young Investors

    Learn how mutual funds work, why they are so popular and how younger investors can get started by putting mutual funds in their IRAs or 401(k)s.
  2. Financial Advisor

    Advising FAs: Explaining Mutual Funds to a Client

    More than 80 million people, or half of the households in America, invest in mutual funds. No matter what type of investor you are, there is bound to be a mutual fund that fits your style.
  3. Investing

    4 Mistakes to Avoid When Choosing Mutual Funds to Invest in

    Mutual funds are a great way to build wealth but not all of them are the same. Investors have to be mindful of fees, turnover, redundancy and performance.
  4. Financial Advisor

    How to Rate Your Mutual Fund Manager

    What to really look for when you're deciding on a mutual fund.
  5. Investing

    Are Mutual Funds A Relic?

    We list some options other than mutual funds for your retirement plan.
  6. Investing

    Trading Mutual Funds For Beginners

    Learn about the basics of trading and investing in mutual funds. Understand how the fees charged by mutual funds can impact the performance of an investment.
  7. Investing

    How liquid are Fidelity mutual funds?

    Review the liquidity features of mutual fund shares and an overview of Fidelity mutual funds. Most investors look for convenient access to their investments.
  8. Investing

    Mutual Fund Basics Tutorial

    Learn about the basics - and the pitfalls - of investing in mutual funds.
  9. Financial Advisor

    5 Secrets You Didn’t Know About Mutual Funds

    Learn five of the "secrets" about mutual funds that can have a significant impact on mutual fund choices and investor profitability.
  10. Investing

    Trading Mutual Funds for a Living: Is It Possible?

    Find out why trading mutual funds for a living isn't your best bet, including how funds discourage short-term trading and which options may better serve you.
  1. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  2. Mutual Fund Yield

    Dividend payments divided by the value of a mutual fund’s shares. ...
  3. Exchange-Traded Mutual Funds

    Investopedia explains the definition of exchange-traded mutual ...
  4. Mutual Fund Custodian

    A trust company, bank or similar financial institution responsible ...
  5. Mutual Fund Timing

    A legal, but frowned-upon practice, whereby traders attempt to ...
  6. Fund Supermarkets

    An investment firm or brokerage that offers investors a wide ...
Hot Definitions
  1. Federal Debt

    The total amount of money that the United States federal government owes to creditors. The government's creditors include ...
  2. Passive Management

    A style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. ...
  3. Series 7

    A general securities registered representative license administered by the Financial Industry Regulatory Authority (FINRA) ...
  4. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  5. Expatriation Tax

    An expatriation tax is a tax on someone who renounces their citizenship. In the United States, the expatriation tax provisions ...
  6. Earnings Stripping

    Earnings Stripping is a commonly-used tactic by multinationals to escape high domestic taxation by using interest deductions ...
Trading Center