What Is Mutual Fund And How It All Started
The foundation stone of mutual funds is quite interesting. In the mid 1800s, the idea of pooling in money was initiated in Europe for the purpose of investing. In the year 1893, at Harvard, USA, the first pooled fund was created for the faculty of Harvard University. Later In 1924, three security executives from Boston together created the first mutual fund. They collectively bought stocks, which turned out to be profitable. They had no idea of how popular mutual funds would eventually become. This led to the creation of the Massachusetts Investors Trust and on the 21st of March 1924, the first official mutual fund was launched.
A year later the trust grew from $50,000 in 1924 to $392,000 with approximately two hundred shareholders, all of it in assets. But a study by the Investment Company Institute has shown that there are more than ten thousand mutual funds, which can be approximately valued at $7 trillion and 83 million investors. With the Great Depression in 1929 in the US, the growth of mutual funds slowed down tremendously. The Congress sanctioned the Securities Act of 1933 and the Securities Exchange Act of 1934 that required mutual funds to be registered with SEC, which is the U.S. Securities and Exchange Commission. This led to the creation of the Investment Company Act of 1940, which makes sure that the guidelines are complied by the various companies and laid down the foundation of what is mutual fund today. The mutual funds also began to do better as the stock market returned to stability, and towards the end of the 1960's the number of mutual funds increased to about 270 and was still on the rise. It was valued at $48 billion in assets.
So to get the exact meaning of what is mutual fund, the Webster dictionary defines it as "an open-end investment company that invests money of its shareholders in a usually diversified group of securities of other corporations". In other words it is a channel that allows and enables a group of investors to collect their money and invest it in securities that are quite specific. Investing in mutual funds makes the person a shareholder of the fund since they have purchased shares or portions of the fund.
It is one of the perfect investments being cost effective, and easily available to be invested in. So economical it is to trade using mutual funds that investors can purchase the stocks or bonds at lower trading costs, and the diversity of mutual funds is the onus of the bonus. The Individual Retirement Account (IRA) that started in the 1981 is the highest contributor to mutual fund growth. They contribute about $2000 per year and the employer-sponsored as retirement plans are making the IRA's and Roth IRA's, basically the mutual funds popular.
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