For the small investor to make an intelligent selection from these—indeed, to pass an intelligent judgment on a single one—is ordinarily impossible.He lacks the ability, the facilities, the training, and the time essential to a proper investigation.The cost of management is usually stated as a percentage of net asset value per share, computed quarterly in most cases.
The individual investor usually lacks the capital to do this.
Second, the funds can make no claim to superiority over the market averages, which are in a sense investment trusts with fixed portfolios; e.g., the stocks composing the particular “average.” They state, rather, that their performance must be judged against what the individual could have done at the same cost over the same period, with the same objectives as has a given fund.
Third, it is evident that the open-end investment company cannot attain perfect fulfillment of all the objectives stated below, but makes available the most adequate combination of facilities for the individual investor; that is, it offers the package with the greatest total amount of management, diversification, income, liquidity, and dollar appreciation.
Unless his purchase is to be little better than a gamble, he needs the advice of an expert, who, combining special knowledge with judgment, has the facilities and incentive to make a thorough investigation.
The mutual fund supplies the investor with this expert management, at relatively low cost, with its objectives stated so that the investor can carefully determine which fund best suits his needs.
Evaluation of Management Success Investors must expect the value of their investment company shares to rise and fall with the market, although the average open-end fund is likely to dampen the amplitude of any market fluctuation.