Mutual Fund Theorem

Mutual fund theorem

A result associated with the CAPM, asserting that investors will choose to invest their entire risky portfolio in a market-index or mutual fund.

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Mutual Fund Theorem

A theory stating that all investors ought to place all their risk capital into a mutual fund containing the exact same securities. They then ought to place the remainder of their investments in risk-free securities. The theory recommends a single mutual fund because Markowitz portfolio theory states that there is precisely one portfolio with the maximum return for each level of risk. The mutual fund theorem purports to maximize the return for all capital that an investor puts at risk. It was first suggested by James Tobin.