Nearly 400,000 investors took legal action against the bank, accusing Merrill of failing to disclose conflicts of interest between its brokerage and underwriting businesses.
They alleged that their mutual funds invested in companies with whom Merrill Lynch had investment banking business, and that this was not revealed to investors.
Lawyers representing the investors also said that Merrill Lynch had provided misleading analysis research about some of the companies involved.
The settlement, which was called "substantively fair and reasonable" by district judge John F Keenan, will see the investors receive around 6.25 per cent of the $645 million in damages that they initially sought.
The lawyers employed by the investors were also paid their expenses and fees - totaling $9.37 million.