It is amazing how long old ideas can hang around.  Seventy-five years ago, perhaps in reaction to the Depression wipe-out of investment, many states limited fiduciaries to investing in certain types of “legal investments.”  Statutes would spell out exactly the type of stocks and bonds that were permissible, often before mutual funds were developed. It was an attempt to limit the discretion of investment managers to prohibit investing in “risky” investments that could cause substantial losses for the owners.  It was an effort to narrow the “prudent investor rule” case law that went back to 1830.

By the late 1960s, states had begun to relax the limitations and add more investments to the list.  In 1992, the Restatement of Trusts 3d of the American Law Institute, a statement of the best provisions of the common law, adopted the prudent investor standard for fiduciaries, without stating specific types of investments that were or were not permitted.  In 1994, the National Conference of Commissioners on Uniform State Laws approved the Uniform Prudent Investors Act that has now been enacted in a great majority of the states.  The Uniform Prudent Investors Act specifically says that “a trustee may invest in any kind of property or type of investment” consistent with the prudence standards of the Act.   In Pennsylvania, the Act specifically recognizes mutual funds as permissible investments.

I am not aware of any state that would find an investment in a mutual fund per se improper.  They are a fundamental investment vehicle for millions of individual and institutional investors.  I don’t see why you could not do it.  Just pick some good ones.