InvestorQ : Can mutual funds AMC manipulate stocks as they are having a huge amount of funds?
Manish Mehta made post

Can mutual funds AMC manipulate stocks as they are having a huge amount of funds?

Nitin Shah answered.
3 weeks ago
The most obvious impact of mutual fund trading on stock prices is the immediate increase or decrease it generates. Since stock prices are the composite result of all the day's investor activity, any huge purchase or sale of an individual stock naturally has a large impact on the day's trading range. If a mutual fund liquidates all its shares of stock ABC, for example, and the trade causes the number of total sales to be higher than the total number of purchases for the day, ABC's price will decrease. The trading activity for that day will show that most investors were bearish because the majority sold rather than buying the stock.

The fact that the mutual fund represents a huge portion of the investors for that day does not matter. This effect would be the same if an individual investor bought or sold a large stake in the issuing company, but it is much more common for mutual funds and other institutional investors to wield the kind of buying power necessary to create substantial price changes. Even institutional talk about a given stock can affect its price in the short term.

There is, however, a less scrutinized problem of institutional herding. A less obvious effect of mutual fund trading on stock prices is that of institutional herding. When one mutual fund buys or sells a security, it is highly likely that others will follow suit. This effect is largely due to a herd mentality among investors of all experience levels.

When one fund manager makes a move, especially a bold one, other managers begin to fear that they have missed out on key information. This could affect the price of stocks significantly. But I wouldn’t go so far as to say they manipulate stocks. The impact can be fairly large on small-cap and mid-cap stocks, which on the outside may feel like manipulation. But that’s largely not the case.