A mutual fund is a type of financial well that is filled up with money collected from many investors, who have invested in various money markets instruments like “bonds, shares and other securities”.
The idea of pooling assets has been on the surface for over 100 years but it was not given attention by the public until the early 20th century.
Mutual funds captured the public attention in the late 1980s and the early 1990s.
Mutual funds are the number one way of investment in today’s time still many people are unfamiliar with the history of mutual funds.
The historical story of mutual funds might not be as interesting as that of the exchange-traded funds still it has it’s own exciting story.
So, let’s jump into the time machine and travel back to the 18th century to explain where it all started. Being precise, let’s travel back to the year 1774, Netherlands.
Eendragt maakt magt [unity creates strength].
This quote was coined by Abraham van Ketwich, the person who started it all.
Abraham started the idea of pooling money to his Dutch investors by starting his own fund company, Eedragt maakt magt. He was appealed with the idea that his investors would surely like to invest in his fund with the minimal capital amount.
The idea turned out to be profitable for both the parties, leading a way for the growth of the mutual funds’ industry.
By 1780 more than 30 such investment funds were started.
It took nearly 2 decades for the mutual funds’ industry to set it’s feet in India and be accepted by the public of India.
The mutual fund industry was introduced in India in 1963.
It started with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India.
Mutual funds were not entirely accepted by the Indian public until the late 1980s due to the high risk that was at stake with this industry.
The mutual funds’ industry started booming by the early 20th century.
It started growing even more when the Massachusetts Investors Trust (MITTX) was created on March 21st, 1924. The Massachusetts investors trust gave birth to the mutual funds as we know today.
With the opening of the trust, the mutual funds industry saw a steady rise. Mutual funds were started way back in the 18th century as a basic concept of pooling money by a Dutch merchant. The topic of mutual funds became the topic of business discussion.
Medieval history also saw the upcoming of two types of mutual funds: Open-end mutual funds and Close-end mutual funds.
Open-end mutual funds were the investor-friendly funds. They did not limit the number of shares that were offered and were redeemed on demand. Whereas, closed-end mutual funds were company friendly and offered only a limited number of shares at the first public offering.
By the year 1928, fourteen open-end mutual funds were competing with the previously on-going 700 closed-end mutual funds. Even though the concept of Open-end mutual funds was new but because it inclined more into the favour of the investors and hence was widely accepted.
The competition of 14 to 700, though seems to be unfair but was won by open-end mutual funds and led to the wiping of many closed-end mutual funds in the market.
The coming of open-end mutual funds led to a steep rise in the investment of mutual funds in America as well as other concerned countries.
Even now when we think of mutual funds, Open-end mutual funds are our go-to funds.
Years after the World War 2 saw the fall in many sectors and industries but the mutual fund industry saw a rise at this time of the 20th century.
The industry was wholly accepted by the American citizens giving it a way to the global reach through their multinational companies.
The number of open-end mutual funds industries began to expand furthermore. By the year 1954, there were 100 new open-end mutual fund setups. The same year saw the growth of the financial markets after it’s peak clash in the year 1929. This paved the way for a further rise in the mutual funds industry.
Now more than 50 new funds were started and the mutual funds industry made an appearance on a more large scale as well as small scale.
By the year 1960s, hundreds of more new funds were started in the financial market, giving people a wider choice for investments.
But the industry cooled down by the year 1969 and people started redeeming the investments at a fast pace.
The money flew out of mutual funds tremendously as further investments set foot in the financial markets.
This depression, though lasted for a small amount of time generated the risk of mutual funds in the mind of the companies.
By the year 1990, the bull market gathered whole new attention and the mutual funds industry was left behind scenes.
This led to more denial of mutual funds by the public and to restore it’s reputation some companies took the wrong way to handle things.
2003, the mutual fund scandal in the U.S.A, made the impression that mutual funds are more beneficial for companies than for the public. The fraud generated doubts along with fear in the mind of investors and they started investing in other securities.
The year 2007 saw a deep recession in the mutual funds industry. This period saw a great financial crisis for the whole world.
The great recession along with the global financial crisis was enough to make people fearful of the idea of investing in mutual funds.
This risk was eliminated by further changes and the coming of new funds in the mutual funds industry restored it’s place in the financial markets.
The mutual funds’ industry had it’s fair share of fall and rise in the beginning as well till the modern times, but still it didn’t collapse and became one the largest investment industry today.
With more than 14,000 mutual funds available to investors today, we all owe Abraham van Ketwich as well as the other early innovators a bit of gratitude.
The bottom line is that even after the great recession and the scandals, the mutual funds industry kept on growing.
Mutual funds are subject to market risk still there is no profit without a few risky investments.