What do leverage restrictions refer to in mutual fund investments?

Leverage restrictions in mutual fund investments specifically pertain to controls on borrowing for investments. This practice is important because it regulates the extent to which a mutual fund can use borrowed money to increase its investment exposure. By limiting borrowing, leverage restrictions help mitigate risk, ensuring that funds do not engage in excessively risky behavior that could lead to significant losses. This is particularly critical in the mutual fund industry, as excessive leverage can threaten the stability of the fund and potentially harm investors.

While limits on investment amounts relate to how much an investor can put into the fund and restrictions on trading activities focus on the types of trades a fund can execute, these concepts do not pertain directly to the idea of leverage and borrowing. Controls on fund managers' salaries address compensation structures and do not impact how much a fund can borrow. Therefore, the focus of leverage restrictions clearly lies in the regulation of borrowing for investments.