Frequently Asked Questions About Stock Mutual Funds

How many stock funds are there?
Stock funds are the most common type of mutual fund, accounting for 4,586 of the more than 7,977 mutual funds available at year-end 2005, according to ICI's monthly survey of the U.S. fund industry.

What is the percentage of total mutual fund assets held in stock funds?
Approximately 55 percent - or $4.94 trillion - of total mutual fund assets are invested in stock funds. For comparison, money market funds account for 23 percent ($2.04 trillion) of overall mutual fund assets.

Share of Total Mutual Fund Assets by Category

Note: Components may not add to 100 percent because of rounding.

What are mutual fund holdings relative to the U.S. stock market?
Mutual funds held 23 percent of all publicly traded U.S. stocks at year-end 2005. Private pension funds, state and local government retirement funds, households, insurance companies, private trusts, residents of foreign countries, exchange-traded funds, and other investors hold the remaining 77 percent.

What are the trends in stock fund asset levels?
Stock mutual funds have become an important investment option for millions of Americans who are focused on a long-term investment horizon, such as retirement savings and education. Assets of stock funds steadily rose throughout the 1990s, at a compound annual rate of 32 percent. The severe bear market from mid-2000 to year-end 2002 resulted in lower stock fund assets. By year-end 2005, stock fund assets reached $4.94 trillion, above the $4.04 trillion reported for year-end 1999.

Stock Fund Assets
(billions of dollars)

What elements contribute to stock fund asset growth?
Fund performance and new investments contribute to the growth in assets. Performance - the appreciation of existing assets plus reinvestment of portfolio earnings - has accounted for roughly 15 percent of the growth in fund assets from year-end 1999 to year-end 2005. Net new cash flow (consisting of new sales of shares less redemptions plus net exchanges) has accounted for about 85 percent of asset growth.

What are the trends in stock fund cash flows?
In 2005, stock funds experienced an inflow of $135.63 billon for the year, somewhat below the pace of the previous two years, but still a sizable amount.

What is the source of money flowing into stock funds?
The money comes from a variety of sources, including individuals saving for retirement and future education expenses. Although the industry does not trace the source of money used to purchase mutual fund shares, Federal Reserve data indicate that households have been net sellers of individual stocks while acquiring stock mutual fund shares in recent years.

Net New Cash Flow to Stock Funds
(billions of dollars)

What percentage of equity fund assets is held in tax-deferred retirement accounts?
Most stock fund assets owned by individuals are held in tax-deferred retirement accounts, such as 401(k) plans and IRAs. As of the end of 2005, 48 percent of all individually owned stock fund assets were invested in tax-deferred accounts. Moreover, approximately one of every three dollars in mutual funds is held in retirement plans and accounts.

Where can I find more information on stock funds?
The ICI offers a guide to understanding mutual funds as part of its Investor Awareness series, tracks U.S. household ownership of stock, bond, hybrid, and money market mutual funds and assets and other statistical data on all types of mutual funds.

August 2006