A mutual fund set up to mirror* a previously existing mutual fund.
Large funds may have problems investing in small or new corporations; thus, when a fund gets too big a clone fund may be created. This clone has the same investment objectives, but does not necessarily invest in the same securities
, and generally is operated by different fund managers. This sort of clone fund may also be set up to mirror successful closed-end fund
A clone fund may also be a mutual fund that replicates the performance or strategy of an existing mutual fund or index fund
through the use of derivatives
**. Crazy, huh? This can be useful in certain situations, tho. For example, if you are a Canadian who is interested in investing in an American (or other foreign) company, you are limited by law in how much you can invest. One way around this is to use this sort of clone fund; the derivatives being traded in Canada count as a Canadian security, even if it's for an American company.
* This is not the same as a Mirror Fund.
** The derivative writeup leaves something to be desired, so I will mention here that futures contracts, forward contracts, and options are the most common types of derivatives.