Since the creation of the first mutual fund in 1929, the mutual fund industry has enjoyed the fastest growth rate of the financial investment industry. In 1949, all mutual fund companies combined controlled $2 billion; fund assets soared to $6.5 trillion at the outset of 2003, and more than $12 trillion in 2007, making the funds America’s largest financial investment vehicles.
The mutual fund industry consists of investment companies that sell shares in one or more portfolios of financial assets. Fund managers determine the composition of the portfolio, which may include stocks, bonds, government securities, shares in precious metals, and other financial assets. As open-end funds, they are sold publicly, and their shares must be redeemed by the investment company on request of the shareholder.
Mutual funds are categorized by their general investment objectives. Equity funds consist of common stocks and are organized to achieve capital growth. Bond funds are composed of corporate, U.S. government, or municipal bonds and emphasize regular income. Income funds have the same objective as bond funds but include Government National Mortgage Association securities, government securities, and common and preferred stocks as well as bonds. Money market mutual funds consist of short-term instruments, such as U.S. government securities, bank certificates of deposit (CDs), and commercial paper. Short-term municipal bond funds are composed predominantly of tax-exempt, short-term municipal securities.
The mutual fund industry is regulated by the Securities and Exchange Commission (SEC) and by state regulations and securities laws. The first mutual fund was developed on March 21, 1924, when three Boston securities executives pooled their money to establish the Massachusetts Investors Trust. In just one year, the mutual fund grew from $50,000 to $392,000 in assets. Investors welcomed the innovation and invested in this new vehicle heavily; however, the stock market crash of 1929 slowed its growth. To instill investors with confidence, the U.S. Congress passed the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940, which set standards with which mutual funds must comply.
By the end of the 1960’s, there were approximately 270 funds with $48 billion in assets. One of the largest contributors to the mutual funds’ growth was the provision added to the Internal Revenue Code in 1975 that allowed individuals already in a corporate
In 1976, John Bogle founded the first retail index fund (a passively managed fund that tries to mirror the performance of a specific index, such as the S&P 500), named First Index Investment Trust. Later renamed
Jacobs, Bruce. All About Mutual Funds. Columbus, Ohio: McGraw-Hill Companies, 2001. Mobius, Mark. Mutual Funds: An Introduction to the Core Concepts. Hoboken, N.J.: John Wiley & Sons, 2007.
401(k) retirement plans
Internal Revenue Code
New York Stock Exchange
Supreme Court and banking law