The Beginnings of Mutual Funds

It is undeniable that mutual funds have become really popular nowadays. And this is not without good reason – mutual funds give the biggest return of investments if properly managed. Compared to certificates of deposit and money market accounts which offer really low interest rates, a mutual fund works for its investors in order to get maximum gains.

For the novice investor, investing in mutual funds is recommended because you dont need to take crash courses and make crucial decisions that can affect the potential returns of your investment. Mutual funds allow you to get a feel of the industry before investing a big chunk of your money. It is also considered a low risk investment because it diversifies the funds asset over various investment options.

To understand mutual funds better, it is necessary that we take a look at how it has developed over the years. Historians believe that the Netherlands is the official birthplace of the mutual fund, crediting King William I when he launched his closed-end investment companies in 1822. Others say, however, that it was a Dutch merchant named Adriaan van Ketwich who was responsible for creating the idea of a mutual fund in 1774.

Nonetheless, Great Britain and France recognized how sound the investment opportunity is and established mutual fund companies in their respective countries. The United States caught up with these countries only in the 1890s. The mutual fund of today is very much different from the mutual funds of the past. But the establishment of the Alexander Fund in Pennsylvania paved the way for the modern version of the mutual fund. In the following years, features like the ability to do withdrawals on request and semi-annual issues were added.

The creation of the Massachusetts Investors Trust in 1924 signified the start of the modern mutual fund. By the following year, the Trust grew to having an asset base of $400,000.00 with 200 shareholders. In 1928, the fund went public. In the same year, a mutual fund called the Wellington Fund was the first one to include stocks and bonds in their investment options. This prompted an increase in the value of stocks which made investors to invest in the market heavily. With these events, 1928 was considered one of the most wonderful years in mutual fund history.

Then the unexpected happened, the worst stock market crash hit Wall Street in 1929. The value of stocks declined immediately and there was little demand for goods which lead to the Great Depression. But something positive came out of this crash, finally, the government took notice of the mutual fund industry. They then passed laws which govern the industry to protect its investors from deceit.

With all the governing laws in place, the stock market regained the trust of the investors. This indicated the start of the flourishing of the mutual fund industry. By the end of the 60s, about 270 funds were around with assets amounting to $48 billion. From then on, the mutual fund industry continued to grow.

Now, a mutual fund is considered as a sound investment from investors all over the world. Whichever way you look at it, mutual funds still has a lot of room to grow in. And the good thing about it is that you can profit from this industry without risking too much.

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