Can Mutual Funds Own Stocks Under $5?
It's often said that mutual funds and other institutional investors can't own stocks that trade for less than $5, condemning low-priced stocks to retail ownership only. But the truth is actually the opposite -- there are some roadblocks for investing in penny stocks, but they are most applicable to average Joes, not professional investors who run institutional sums.
Mathematically, a company worth $10 billion is still worth $10 billion, whether it is sliced into $1 shares or $1,000 shares. However, the government takes a different view due to laws passed to thwart bad brokerage practices.
Congress put share prices in the spotlight when it made it more difficult for brokers to process client transactions in stocks priced lower than $5 each, the cutoff point below which a stock earns the "penny stock" label.
Source: Fool.com
