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Fund Spy

How Mutual Funds Can Paint Themselves into a Corner

Should mutual funds invest in venture capital?


The SEC says that mutual funds can invest only 15% of assets in illiquid securities, and I wonder whether that level isn't too high by, oh, maybe 15% or so.

Mutual funds provide a number of services to investors, and one of the biggest is daily liquidity. Every day that the stock market is open, mutual funds sum up their portfolios' value and let investors buy and sell at that price. We don't think about it much, but it's one of the reasons that the fund industry is so huge. Even long-term investors feel comforted knowing that the option to get out is there when they want it.

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Russel Kinnel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.