In 2006, more funds went public (offered stock to individual investors for the first time) than actual companies that sell things

Mutual funds are investment companies: An investment advisor manages pools of money, following whatever strategy is described in the fund's prospectus. Index funds are passively managed baskets, synced up to an index the fund tries to mimic. The fund promoters make money on management fees to run the fund.

Today the buzz is all about exchange traded funds (ETF). ETFs have the excitement and tradability of stocks, with the sensibility of diversified mutual funds - only cheaper. Or that's the pitch anyway.

ETFs are often based on indexes, though these days, the indexes are really just formula-driven lists of stocks created by the fund company - like "highest dividend stocks in the S&P500, equally weighted" or "healthcare stocks, ranked by market cap.

Investment company stocks - stocks of the advisor's behind the mutual funds - have been among the stock market's best performers in recent years. And why not, they collectively manage over $10 trillion

There are two big problems with the new funds glut:

1) Investors tend to get into trouble with more targeted and risky investment choices. The more concentrated your investment, the greater your downside.

2) What is saleable is rarely a good idea. Investor optimism is like fertilizer for funds. The greatest boom in fund launches occurred before the crash of 1929, the Nifty Fifty wipeout and ensuing 1970s market decay. Far more funds launched in the 12 months before the 1987 crash than the 12 months after - and those launched post-crash tended to be safer bond funds. The late 1990s were among the biggest boom times for fund launches

   Full article at foxnews.com

"As an investor, you'd have to look pretty hard to find something fundamentally wrong today. The economy is strong, employment is great, inflation is under control, interest rates are low, corporate profits are at record levels, per capita wealth is at all time highs, home prices remain elevated, the most invested in stock index and the S&P 500 is still below record levels.

The number of new funds is probably the most frightening feature of this new "permanently high plateau" in the economy and stock market. There simply can't be this many good ideas."