Mutual Fund Competition

7 Pages 1675 Words

A mutual fund is a corporation that pools large sums of money ranging from one million to several billions of dollars, pooled from millions of individual investors, just like you, who wish to save or make money. An individual or a team of professional money managers who invest the pool of money into stocks, bonds, or other securities runs mutual funds. I believe the form of competition a mutual fund would encounter would be monopolistic competition. The mutual fund competitive market would consist of the 10-12 large investment houses. Examples are Charles Schwab, Merrill Lynch, Fidelity, etc. etc. A couple of examples of the funds available are income funds, and growth funds.
Taken as a whole, my suggestion would be that large mutual fund markets are imperfectly competitive. The quality of the product does not seem to be related to the price of the product and the quality-price relationship does not seem to be improving in spite of the large number of suppliers in the market. It’s difficult to determine the quality of the product being sold. Securities are difficult to price because risk is difficult to judge. Both the market and mutual funds are responsible for prices. I believe their main focus would be not only who the competition is, but also, how well their competitors are doing on their returns for investors. If another firm is getting a better return for the same perceived amount of risk, they are more susceptible of losing their clients.
The ease of entry into this market can be somewhat difficult. On the entry side of this industry, I think it would be difficult to enter this market because of the knowledge/track records needed to sell a particular mutual fund to potential investors. Also, money can be known as an entry barrier. Starting your own mutual fund organization is likely to be costly.
Analysis using Porter’s Five Forces for Mutual Funds
Starting at the center of Porter’s diagram, I looked at the competito...