When you buy shares in a mutual fund, you are both protected and limited by the Investment Company Act of 1940. This Congressional Act was aimed to root out the causes of the Stock Market Crash of 1929 and subsequent Great Depression by placing significant constraints on the ability of fund promoters to scam the individual investors they contact.
When you buy a mutual fund, there are certain guarantees that you receive: (1) the shares of the fund you buy are registered with the SEC; (2) the fund must have a board of directors, and 75% of those directors must be independent from the managers of the fund that individually select the investments; (3) the fund must refrain from directly managing its investment holdings and must function as a passive investor; (4) the fund must limit the amount of leverage it employs and must have certain cash on hand to … Read the rest of this article!
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