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History of Mutual Funds

  • 1800s

    Europe, the idea of merging the financial resources of several investors emerged.

  • 1893

    The faculty and staff of Harvard University were the first to enjoy the benefits of the first pooled fund in the US.

  • 1924

    Massachusetts Investors Trust - the first official mutual fund. It was created by three Boston securities executives, without anticipating the big popularity of this new endeavor. The initial amount that was invested was $50 000.

  • 1925

    The money in the Massachusetts Investors Trust grew to the impressive $392 000 in assets just for one year. The number of shareholders increased to approximately 200.

    Today, the number of mutual funds has grown to the outstanding 10 000, circulating approximately $7 trillion! According to the Investment Company Institute the investment players on the market are around 83 million. You can see for yourself how well the idea of pooling together money for the purpose of collective investment has been accepted!

  • 1929

    Stock market crash. This serious crash led to the lag in the development of the mutual funds.

  • 1933

    The Security Act was passes by the Congress in response to the market crash of 1929.

  • 1934

    The Securities Exchange Act

    Both the Security Act of 1933 and the Securities Exchange Act were aimed at averting similar events. They included the stipulation that funds should be registered in the US Securities and Exchange Commission (the SEC). Additionally, these laws made obligatory the issuance of a prospectus, from where the prospective investors can verify funds reports.

  • 1940

    The Investment Company Act was created, facilitated by the SEC. It established the general guidelines, which are also applicable today.

    All these legislations facilitated the regeneration of the confidence in mutual funds.

  • 1960s

    The number of mutual funds grew to approximately 270 circulating around $48 billion in assets.

  • 1976

    The First Index Investment Trust was established by John C. Bogle. It represented the first retail index fund ever created and it is the grandfather of the now famous Vanguard 500 Index fund. In 2000 the Vanguard fund was announced as the largest mutual fund in the world due to its $100 billion in assets.

  • 1981

    The Individual Retirement Account (IRA) was created. IRA made its valuable contribution to the development of the mutual funds by allowing individuals to allocate $2 000 per year. This opportunity was also available to individuals who already participate in corporate pension plans.

Mutual funds enjoy a wide popularity among both employers, who include them in their employees' 401 k plans, IRAs and Roth IRAs. The funds have deserved their popularity thanks to their easy manipulation and high liquidity. Mutual funds have made it possible to enjoy the advantages of diversification at a low operation cost and lower degree of risk.

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