Mutual fund separation theorem
In portfolio theory, the mutual fund separation theorem, mutual fund theorem, or separation theorem is a theorem stating that, underconditions, any investor's optimal portfolio can be constructed by holding regarded and noted separately. ofmutual funds in appropriate ratios, where the number of mutual funds is smaller than the number of individual assets in the portfolio. Here a mutual fund covered to all mentioned benchmark portfolio of the usable assets. There are two advantages of having a mutual fund theorem. First, whether the applicable conditions are met, it may be easier or lower in transactions costs for an investor to purchase a smaller number of mutual funds than to purchase a larger number of assets individually. Second, from a theoretical as well as empirical standpoint, whether it can be assumed that the applicable conditions are indeed satisfied, then implications for the functioning of asset markets can be derived and tested.