Chapter 1: Mutual Funds

Regulated open-end funds (OEFs), which include mutual funds, exchange-traded funds (ETFs), and institutional funds are exceedingly popular. According to the 2018 Investment Company Fact Book, there were 114,131 regulated funds worldwide in 2017. That’s a lot of choices! Mutual funds continue to provide investors with the chance to invest in many stocks, bonds, and other investments with a single transaction. By accumulating funds from numerous investors, mutual funds enable you to invest and take advantage of market opportunities with the help of professional management. For many investors, mutual funds are the pooled investment vehicle (PIV) of choice.

Dutch merchant Adriaan van Ketwitch formed the world’s first mutual fund in 1774 by pooling money from a limited number of investors. The fund diversified across European countries and the American colonies through the backing of income from plantations. The subscription to the fund was called “unity creates strength” and was limited to 2,000 units. The fund survived until 1824, but the concept of pooling money to create PIVs continues today. The first mutual fund in the United States, Massachusetts Investors Trust, was created in 1924. The fund grew from $50,000 to $392,000 in assets in one year. It became available to the public in 1928 and later became MFSA Investment Management. In 1940, the United States had 68 mutual funds, but this number had grown to 9,356 by 2017, with net assets under management (AUM) of almost $19 trillion.