Financial Planning

A mutual fund pools investor money to purchase stocks or bonds, allowing individuals to hold a wider assortment of these items then they could if they attempted to purchase them on their own. A mutual fund is not a product, it is a stake in a corporation that hires a manager to invest the supplied money. The money contributed by investors is referred to as fund assets, the stocks and bonds purchased are holdings, and all of the holdings grouped together comprise the portfolio of the fund.

The different types of funds are dependent upon the kinds of securities they hold. Investors receive a portion of the portfolio and regardless of how much they invest, their stake in this portfolio is small. Investors find mutual funds attractive because they do not require a large initial investment, can easily be bought and sold, and are regulated by the SEC.

When it comes to the ranking of the biggest mutual funds, PIMCO Total Return tops the list, with over $239 billion in total net assets. This intermediate term bond fund has a five star rating from Morningstar and a 7.41 percent year to date return as of July 31, 2010. Coming in at number two with just shy of $122 billion in assets is Fidelity Cash Reserves and with $88.33 billion in assets, Vanguard Money Market Reserves ranks third.

JP Morgan makes its first appearance on the list at number four with its $74.56 billion Prime Money Market Fund . The company’s U.S Government Money Market ranks number 23, with $37.33 billion in assets. The SPDR S&P 500 ETF comes in at number five with $72 billion in net assets and a 52-week high share price of $122.12.

One thing to keep in mind is that the size of a mutual fund and its ratings do not necessarily determine its success. Some experts, including Morningstar itself, recommend using expense ratios rather than star ratings to select the best mutual funds. According to the Morningstar study, 58 percent of the time, using expense ratios turned out to be more helpful than making decisions based on Morningstar ratings.