Are Mutual Funds Marketable Securities?

Mutual funds are marketable and liquid financial assets.

Mutual funds may be easily returned to cash, as they're liquid marketable securities. They may be closed-end securities that trade on the stock exchange. A closed-end fund has a market price and a net asset value. Open-ended mutual funds don't trade on a securities exchange. According to "Private Wealth Management: The Complete Reference for the Personal Financial Planner" (2009), marketable securities should possess relatively stable price performance.

Types

Marketable securities fall into three categories. A marketable security is used for trading, held to a future maturity date or available for sale in the market. Some mutual funds have a maturity date. These mutual funds are comprised of securities with maturity dates. An investor may decide to hold a mutual fund to its maturity, especially when the securities of the fund mature at a higher-than-current market value. "All About Bonds, Bond Mutual Funds and Bond ETFs" (2008) describes the enhanced marketability of a bond mutual fund versus liquidity of individual bonds.

Identification

Sometimes a closed-end fund's open market price is much lower than its net asset value (NAV). Net asset value is the net result of a mutual fund's total assets minus total liabilities. Most funds calculate each day, because securities prices rise and fall according to supply and demand.

The market price of a closed-end fund demonstrates the fund's marketability, though the market reflects a lack of enthusiasm for the fund's management or strategy. Depending on your investment perspective, the deeply discounted closed-end fund may present a long-term investment opportunity. Investors purchase more of the marketable closed-end fund to reduce their cost basis.

Misconceptions

According to "Fundamentals of Financial Management" (2006), money market mutual funds are typically purchased and sold at $1 per share. The short-term securities held in the investment portfolio allows the fund to redeem shares at a stable value.

Investors in 2008 learned that money market funds may be redeemed at less than $1 per share if the fund's assets decline. Money market mutual funds aren't insured by the FDIC. Investors must evaluate the quality of investments in any mutual fund, including money market funds.

Considerations

An open-ended mutual fund is considered a marketable security. Trading in the shares of the fund must occur exclusively through redemptions made through the issuer.

A mutual fund's redemption price is determined by the market price of the mutual fund portfolio's securities, less investment charges or expenses. These charges and expenses are defined in the mutual fund prospectus. Always evaluate mutual fund investments carefully for hidden costs and charges.

As a marketable security, the mutual fund's price at redemption determines whether the investor has a profit, loss or flat result.

Warning

According to the Securities & Exchange Commission, mutual funds offer the benefits of professional management and liquidity to investors. However, mutual funds aren't without risk. Because mutual funds invest in securities that trade in the financial markets, the value of the mutual fund varies according to market conditions and supply and demand.

References

• Wharton School: "Private Wealth Management:"; G. Victor Hallman, Jerry S. Rosenbloom; 2009
• "All About Bonds, Bond Mutual Funds and Bond ETFs"; Esme Faerber; 2008
• "Fundamentals of Financial Management"; John Martin Wachowicz; 2006
• Investor.gov: Mutual Fund
• GPO.gov: Mutual Fund Fees
• Securities & Exchange Commission: Mutual Funds

Resources

• "Financial Instruments 2009"; R. Sangiuolo, L. F. Seidman; 2009
• OTS U.S. Treasury: Marketable Securities
• "Personal Financial Planning"; Lawrence J. Gitman, Michael D. Joehnk; 2007
• "Mutual Fund Industry Handbook:"; Lee Louis Gremillion; 2005
• The Boston Institute of Finance: "Mutual Fund Advisor"; 2005
• "Essential Investment: An A to Z Guide"; Philip Ryland; 2009