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Finance allah shmoop what is the seventy five five ten

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rules I can't believe it's not a mutual fund All

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right seventy five five ten hich way doing there Okay

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so seventy five tens a structure under which mutual funds

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are defined as actually being diversified This set of rules

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came down from the nineteen forty act which outlined all

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kinds of details that today rule the mutual fund industry

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Specifically that means that to qualify for being considered a

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diversified mutual fund the fund must have at least seventy

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five percent of its assets invested in external securities like

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normal stocks and bonds I either fun can't invest in

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its own stock seems like an obvious rule But all

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kinds of slick dealers took advantage of the system in

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the early days of you know mutual fund Oh in

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cash and cash E instruments like money market index funds

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get counted in this seventy five percent number as well

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Okay that's a seventy five What about the five there

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Well that number of first to the max amount of

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the fun that can be invested in any one stock

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And that includes various siri's like one company might have

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supervoting be stock like google slash alphabet as well as

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normal a stock the five percent there maxes out as

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a total of each Remember that the goal here is

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qualifying to be diversified If you have more than five

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percent anyone investment Well should it go bad Overall performance

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of the fund would be really really harmed right So

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what happens if a given fund put on a whole

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load of dough into amazon in two thousand ten like

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it was four percent of its fund at that point

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And then the stock goes up abovitz five percent the

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old fashioned way i'ii buy just growing fast like amazon

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stock it All right well the fund then in theory

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has to trim it down Trim down that amazon exposure

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amazon position to sit below that five percent max threshold

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There's actually a lag or duration that fund companies air

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allowed Tto handle of a stock should suddenly jump like

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amazon did and pierce that five percent figure But there

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must be a plan to trim out the overexposure to

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that one awesome stock Okay so that's the five What

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about that ten on the end there Okay the ten

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percent figure refers to control meaning that a mutual fund

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can't own more than ten percent of a given cos

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voting stock So if a company has ten for one

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supervoting class b stock than the fund company can't own

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more than one percent of that b stock right because

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then they'd have ten percent control But if company has

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a stock that's identical to be in every single way

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except for board election votes will then the fund could

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own ten percent of the a stock The goal here

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tto limit fund influence over a particular companies Management decisions

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to money influence whisperer temptations If fund companies could in

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fact directly influence board elections or whatever So that's a

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seventy five five ten rule kind of like the golden

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rule except that it's more doing to mutual funds as 00:02:48.29 --> [endTime] you would have them do unto you

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