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What are mutual funds? Unlocking investment potential through efficient distribution channels


by Johnny Smit
Senior Consultant

Johnny Smit, Senior Consultant at Elgin White

Mutual funds have long been recognized as a popular and effective investment vehicle for individuals seeking to diversify their portfolios and participate in the financial markets.

This first of three articles provides a comprehensive understanding of mutual funds, their management strategies, and the distribution channels they utilize. Additionally, we explore opportunities for improving these distribution channels, to enable mutual funds to act more swiftly in response to market changes and avoid possible loss.

Subsequent articles will explain what an Exchange-Traded Fund (ETF) is and how these two important investment vehicles compare.

What are mutual funds?

Mutual funds are investment vehicles that pool money from multiple investors to create a diversified portfolio of securities, such as stocks, bonds, and money market instruments. They are managed by professional fund managers who make investment decisions based on the fund’s stated objectives and investment strategy, for both institutional investors as well as retail investors.

Mutual fund management

Fund managers play a crucial role in the success of mutual funds. They conduct thorough research, assess market conditions, and make informed investment decisions on behalf of the fund’s shareholders. Fund managers can be individuals or teams employed by asset management companies, which are responsible for overseeing the operation and management of mutual funds.

Fund managers employ various investment strategies, such as active management and passive management (indexing). Active managers strive to outperform the market by conducting extensive research and actively buying and selling securities. Passive managers, on the other hand, aim to replicate the performance of a specific market index, such as the S&P 500, by investing in the same securities as the index in the same proportions. They use various fund houses to trade on stock exchanges to ensure investment return.  

Distribution channels for mutual funds

Mutual funds utilize multiple distribution channels to reach investors and facilitate the buying and selling of fund shares.

The primary distribution channels include:

      • Direct channels: Investors can purchase mutual fund shares directly from the fund company, either online, by phone, or through mail. This channel provides investors (potential customers) with a direct relationship with the fund company, allowing them to access information, receive account statements, and transact directly.

      • Financial intermediaries: Mutual funds are also distributed through financial intermediaries such as banks, brokerage firms, financial advisors, and wealth managers. These intermediaries offer a range of funds to their clients, providing investment advice, personalized portfolio management, and transaction services. They help manage market risk to gain a competitive advantage when working with foreign securities and navigating the secondary market.

      • Retirement accounts: Many mutual funds are available within retirement accounts, such as individual retirement accounts (IRAs) and employer-sponsored 401(k) plans. These accounts offer tax advantages and risk management. They also provide investors with an opportunity to grow their retirement savings through mutual fund investments, ensuring long-term returns. This helps with a reviewing summary prospectus ensuring the transparency of management fees and protecting the principal value of an investment.

    Improving distribution channels for mutual funds

    While mutual funds have established efficient distribution channels, there are opportunities to enhance these channels and enable them to respond more quickly to market changes.

    The following are potential avenues for improvement:

        • Digital transformation: Embracing digital technology can significantly enhance mutual fund distribution channels. Implementing user-friendly online platforms and mobile applications can simplify the investor experience, allowing for seamless transactions, access to real-time data, and personalized investment recommendations. Moreover, integrating automation and artificial intelligence can streamline administrative processes, reduce costs, and enhance efficiency.

        • Data analytics and personalization: Mutual fund distributors can leverage data analytics to gain insights into investor preferences, behavior, and investment goals. By utilizing advanced analytics, distributors can provide personalized investment advice, tailored product recommendations, and targeted marketing campaigns. This approach can enhance customer engagement, satisfaction, and retention.

        • Collaboration with FinTech startups: Collaborating with innovative FinTech startups can inject fresh ideas, innovative solutions, and technologies into the mutual fund distribution landscape. FinTech companies specializing in robo-advisory services, online investment platforms, and blockchain-based solutions can bring efficiency, transparency, and accessibility to the mutual fund market. Such collaborations can foster innovation and attract a broader range of investors.

        • Streamlined regulatory processes: Regulatory authorities can play a crucial role in improving distribution channels by creating an enabling environment for innovation. Simplifying regulatory processes, reducing red tape, and embracing emerging technologies can foster the growth of efficient and agile distribution channels. It is essential to strike a balance between investor protection and promoting innovation to unlock the full potential of mutual fund distribution.

      Benefits of using mutual funds

      Mutual funds provide a variety of benefits when compared with other investment vehicles, including:

          • Diversification: One of the primary benefits of investing in mutual funds is diversification. By pooling investors’ money and investing in a variety of securities, mutual funds spread the investment risk. This diversification reduces the impact of individual security performance on the overall portfolio, making it less susceptible to market volatility like investing in individual stocks.

          • Professional management: Mutual funds are managed by experienced and knowledgeable fund managers who dedicate their time and expertise to analyzing markets, selecting securities, and making informed investment decisions. This professional management can be particularly beneficial for individual investors who may lack the time, resources, or experience required to make effective investment choices for themselves.

          • Accessibility: Mutual funds provide accessibility to a wide range of investors. With various investment minimums and investment options, individuals can start investing in mutual funds with relatively small amounts of money. This accessibility allows individuals to participate in the financial markets and benefit from professional management, which might not be available through other investment avenues.

          • Liquidity: Mutual funds offer investors liquidity, meaning they can buy or sell their fund shares on any business day. This liquidity provides investors with the flexibility to access their investments when needed, unlike certain other investment types, such as real estate or fixed-term deposits, which may have limited liquidity.

          • Regulatory oversight: Mutual funds are subject to regulatory oversight, providing investors with a level of protection and transparency. Regulatory bodies enforce rules and regulations to ensure fair practices, disclosure of information, and adherence to investment objectives. This regulatory oversight helps safeguard investors’ interests and promotes a higher level of accountability among fund managers.


        Mutual funds offer individuals a convenient and diversified means of participating in the financial markets. Through professional management and well-structured distribution channels, these investment vehicles have become a cornerstone of many investors’ portfolios.

        By embracing digital transformation, leveraging data analytics, collaborating with FinTech startups, and streamlining regulatory processes, the distribution channels for mutual funds can be enhanced to respond more quickly to market changes. These improvements will empower investors, enable greater accessibility, and pave the way for a more efficient and dynamic mutual fund industry.

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        Jeremy Hurwitz

        Managing Director - North America

        Based in Los Angeles, California, Jeremy founded InvestTech Systems Consulting LLC in 1990. As President and Director the Enterprise Data Management and Architecture Practice for more than 25 years he managed over 50 large investment technology, strategy, and implementation projects for many of the largest global investment management firms. Following the acquisition of his firm by Accenture in 2017, Jeremy remained as Managing Director, Asset Management Lead.

        Jeremy joined Elgin White in 2022 to lead the firm’s launch into North America. He is recognized throughout the North America asset management community as a thought leader and innovation architect in the design of enterprise data, analytics, and reporting platforms. His deep knowledge, broad buy-side network, and extensive experience deploying business-outcome-focused technology solutions successfully has accelerated the growth of Elgin White in North America.

        Stanley Drasky

        Managing Director

        Stan joined Elgin White in 2020 following an impressive 30-year career working predominantly for world-class buy-side financial services firms in North America and Europe. He is a renowned buy-side technology leader with a reputation for designing and delivering large-scale transformation initiatives at scale and pace. Currently, Stan is especially active leading infrastructure (cloud and managed services) transformation projects.

        His most recent roles prior to Elgin White include Chief Information Officer (EMEA) at State Street and various senior positions during his eight-year tenure at Northern Trust Corporation, including Head of IT & EMEA/Global Director of Fund Administration Technology, Global Director of Asset Management Technology, and Director of Trade Execution Technologies. Stan has also held senior Operational and Technology roles at Nuveen Investments and BNY Mellon.

        Throughout his career Stan has been a strategic client or partner of every major front-to-back office technology vendor including SimCorp and Charles River Development.

        Erik Schutte

        Managing Director

        Erik founded Elgin White’s consultancy practice in 2019, which transitioned the firm into a full-service buy-side consultancy and resourcing business. He is an experienced front-to-back business transformation professional and has held several senior management positions during his more than 30-year career in the UK and his native Netherlands, as well as Asia Pacific.

        Previous roles include Head of Professional Services at SimCorp, Director at PwC UK, and Managing Director for Wealth & Asset Management Services at Accenture UK & Ireland.