SECTION FOUR:
Who Owns Mutual Funds?

SECTION FIVE:
Mutual Funds in the Retirement and Education Savings Markets

SECTION SIX:
Where Investors Purchase Fund Shares

Individual Americans hold about 90 percent of total mutual fund assets. Businesses, state and local governments, and other institutional investors hold the remainder.

This section on owners of mutual funds includes:

a discussion of the growth in the ownership of mutual funds by individuals in U.S. households;
a look at individual shareholder characteristics, examining age and income demographics, and ownership inside and outside defined contribution plans; and
a snapshot of institutional owners of funds.

U.S. Household Demand for Mutual Funds

U.S. household ownership of mutual funds has grown significantly over the past 25 years. Nearly half of all U.S. households owned mutual funds in 2004, compared with less than 6 percent in 1980. In 2004, 92 million individuals in 54 million U.S. households owned mutual funds.

U.S. Household Ownership of Mutual Funds, 1980–2004*

(number and percent of all U.S. households)

*Households owning mutual funds in 1980 and 1984 were estimated from data on the number of accounts held by individual shareholders and the number of funds owned by fund-owning households; data for 1980 through 1992 exclude households owning mutual funds only through employer-sponsored retirement plans; data for 1994 through 2004 include households owning mutual funds only through employer-sponsored retirement plans. The data for 1998 through 2004 include fund ownership through variable annuities.
Download an Excel file of this data.
Source: Fundamentals, “U.S. Household Ownership of Mutual Funds in 2004”

Strong economic growth in the United States during much of the past quarter century has provided the underpinning for the growth in household demand for discretionary financial assets in general, and mutual funds in particular.

The increased demand for financial assets primarily occurred in corporate equities. Some of the increased stock holdings came from an increase in allocation among existing equity owners. New investors were also attracted to equity investments: nearly half of all U.S. households owned stock either directly or indirectly in 2002, up from just under one-third in 1989.

As households shifted into financial assets, they increased their preference for indirect ownership of stocks, bonds, and other securities through mutual funds over direct ownership. By the end of 2004, mutual funds accounted for nearly 20 percent of household financial assets, up from about 7 percent at the end of 1990. Mutual funds offer investors several advantages over direct investments in securities, such as asset diversification, professional money management, asset liquidity, reduced investor costs, investment information and advice, and account reporting.

Mutual Fund Ownership, 2004

HOW MANY PEOPLE OWN MUTUAL FUNDS?

92 million individuals in

54 million U.S. households own mutual funds

WHO ARE THEY?

48 years, median age

71 percent are married or living with a partner

56 percent are college graduates

77 percent are employed

49 percent are Baby Boomers

24 percent are Generation X

WHAT DO THEY OWN?

$125,000, median household financial assets, excluding residence

47 percent, median household financial assets in mutual funds

69 percent own IRAs

84 percent own defined contribution retirement plan accounts

WHAT IS IN THEIR FUND PORTFOLIO?

70 percent bought first mutual fund more than 10 years ago

4 mutual funds, median number owned

$48,000, median mutual fund assets

58 percent purchased first mutual fund through defined contribution retirement plan

80 percent own equity mutual funds

HOW DO THEY INVEST?

71 percent tend to rely on professional investment advice

84 percent are willing to take average or more financial risk for comparable gain

92 percent are saving for retirement

Source: Profile of Mutual Fund Shareholders, Investment Company Institute, 2004

The growth of tax-deferred investing for retirement was another chief factor in the increased share of mutual funds in household financial assets. Tax-deferred vehicles—including defined contribution retirement plans and IRAs—became increasingly popular over the past 25 years, as more employers offered defined contribution plans and as the large Baby Boomer segment of the U.S. population began preparing for retirement.

By year-end 2004, households held 22 percent of their financial assets in tax-deferred products, up from 13 percent at year-end 1990. Moreover, tax-deferred accounts became the primary means of owning mutual funds for many households. In 2004, nearly $3.8 trillion or about half of household mutual fund assets were held in these accounts, up from $234 billion in 1990.

Characteristics of Individual Mutual Fund Shareholders

Most shareholders have invested in mutual funds for many years; 70 percent have owned funds for at least 10 years. Most shareholders own several mutual funds, and the majority usually own at least one equity fund. Fund shareholders typically have long-term investment horizons and use mutual funds to save for retirement or to pay for children’s education.

Fund Ownership by Age and Income

Individuals of all ages and household incomes own funds. Ownership of funds is the greatest among households headed by 35- to 64-year-olds—individuals who are in their peak earning and saving years. The median age of all U.S. mutual fund shareholders was 48 in 2004.

U.S. Households Owning Mutual Funds by Age Group,* 2004

(percent)

*age of individual heading the household
Download an Excel file of this data.
Source: Fundamentals, “U.S. Household Ownership of Mutual Funds in 2004”

Mutual fund ownership increases with household income, although most mutual fund investors are of moderate financial means. In 2004, nearly 60 percent of fund investors had household incomes between $35,000 and $99,999, and shareholders’ median household income was $68,700.

U.S. Households Owning Mutual Funds by Income Group,* 2004

(percent)

*income ranges based on 2003 pretax household income
Download an Excel file of this data.
Source: Fundamentals, “U.S. Household Ownership of Mutual Funds in 2004”

Fund Ownership Through Defined Contribution Plans

With the growth of 401(k) plans since 1990, retirement plans at work have become a common source through which individuals invest in mutual funds. More than 60 percent of mutual fund shareholders currently hold funds through these plans, fairly evenly split between those who solely own funds through retirement plans at work and those who also own funds outside these plans.

Increasingly, individuals are being introduced to mutual fund investing through retirement plans at work. Today, 58 percent of shareholders purchased their first fund from a defined contribution retirement plan, compared with 47 percent in 1998.

Moreover, an increasing number of shareholders consider defined contribution plans to be their primary source for purchasing mutual funds. Nearly 60 percent of all shareholders currently view defined contribution retirement plans as their main fund purchase source, up from about half of all shareholders in 1998.

Where Shareholders Own Mutual Funds, 2004

Sources for All Mutual Fund Shareholders

(percent of all shareholders

Sources for Mutual Fund Shareholders Owning Outside Retirement Plans

(percent of shareholders owning funds outside defined contribution retirement plans)

¹Professional financial advisers include full-service brokers, independent financial planners, bank and savings institution representatives, insurance agents, and accountants.
²Other sources include fund companies directly, fund supermarkets, and discount brokers.
Download an Excel file of this data.
Source: Fundamentals, “Ownership of Mutual Funds Through Professional Financial Advisers”

Fund Ownership Outside Defined Contribution Retirement Plans

About two-thirds of all mutual fund shareholders own funds outside defined contribution retirement plans. Financial advisers help many of these investors select funds. Advisers also provide investors with a range of services after the initial sale of fund shares, including conducting transactions, maintaining financial records, and coordinating the distribution of prospectuses, financial reports, and proxy statements.

Use of Advisers to Purchase Funds

Among investors owning fund shares outside defined contribution plans, more than 80 percent currently own fund shares through professional financial advisers, including full-service brokers, independent financial planners, insurance agents, bank or savings institution representatives, and accountants. Nearly half own funds solely through advisers, while another third own funds purchased from advisers as well as from fund companies, fund supermarkets, or discount brokers. Fourteen percent solely own funds purchased without the help of a financial adviser.

Use of Professional Financial Advisers to Purchase Mutual Funds by Shareholder Characteristics, 2004

(percent of shareholders owning funds outside defined contribution retirement plans)

Characteristics of Investors Owning Funds Through Advisers

Mutual fund ownership through advisers is predominant across all shareholder classifications, including investor age, education, length of fund ownership, and household mutual fund assets. In each of these classifications, three-quarters or more of mutual fund investors have used advisers to purchase funds outside retirement plans. The most significant variation occurs in the education demographic, where 90 percent of fund shareholders with high school educations or less purchased fund shares from advisers, compared with 77 percent of fund owners with graduate degrees.

Shareholder Sentiment of the Mutual Fund Industry

The 2000–2002 bear market and subsequent trading abuses uncovered in September 2003 impacted shareholder sentiment concerning the mutual fund industry. Nonetheless, mutual fund investors generally have a favorable view of the mutual fund industry and are confident that mutual funds will help them reach their financial goals. Reflecting the importance of fund performance in shaping shareholder opinion, mutual fund company favorability has historically correlated with market performance. In addition to fund performance, shareholders indicate their impressions of the fund industry are primarily shaped by personal experience with a fund company, current events in financial markets, and the opinions of professional financial advisers.

Mutual Fund Company Favorability Rating and S&P 500 Index, 1997–2004

Note: The mutual fund company favorability rating is the percent of mutual fund shareholders familiar with and having a “very” or “somewhat” favorable impression of mutual fund companies.
Download an Excel file of this data.
Source: Fundamentals, “Shareholder Sentiment of the Mutual Fund Industry”

Institutional Ownership of Mutual Funds

Financial institutions, businesses, nonprofit organizations, and other institutional investors hold approximately 10 percent of mutual fund assets. Institutional investor data exclude mutual fund holdings by fiduciaries, retirement plans, and variable annuities, which are primarily attributed to individual investors. As of December 31, 2004, financial institutions, which include credit unions, investment clubs, banks, and insurance companies, hold $278 billion in fund assets. Business corporations invest another $381 billion in funds in corporate and similar accounts. Business corporation investments in funds do not include assets held by funds in retirement plans on behalf of employees in employer-sponsored retirement plans, since those assets are considered employee rather than employer assets. Nonprofit organizations, including state and local governments, and other institutional investors hold $170 billion in mutual fund accounts. These institutions invest heavily in money market mutual funds, which account for about 60 percent of all institutional holdings of mutual funds.

For more information, visit the section of ICI’s website devoted to research on fund shareholders.