The mutual fund industry is gaining immense popularity all over the world. In fact, it is fast becoming a favorite choice for individual investors and for a very good reason – properly managed mutual funds can bring you the biggest return for your money! Now, isn’t that something to look forward to?

Let’s admit it. Mutual funds can provide you with more impressive returns on investment (ROI) as compared with Certificates of Deposit and other money market funds that offer a pitifully low interest rate. Now, the stock market offers a more attractive rate but would you consider investing in it if you’re a novice investor? Well, most probably not. The stock market is such a complex matter to deal with if you are not familiar with its comings and goings, and its ups and downs.

That leaves you with the mutual fund. Mutual funds allow you to “test the waters”, so to speak, before you decide to invest a big portion of your money in it. One of its best features is that it spreads your investment over a portfolio of stocks to minimize your risks. In essence, mutual funds let you spread your assets over a number of different investment options and advocate against keeping all your eggs in one basket.

But have you ever wondered how mutual funds evolved? Who could have thought about it, and what could have probably led to its development? Let’s take a closer look.

The Dawn of Mutual Funds

There are many theories as to where and when the evolution of mutual funds originated. Some historians cite the launching of King William I’s closed-end investment companies in the Netherlands in 1822 as the official birthplace of the mutual fund while others give credit to Adriaan van Ketwich, a Dutch merchant who created an investment trust in 1774, as the rightful originator of the concept.

Soon enough, France and Great Britain caught up with the soundness and validity of the idea. By the 1890’s, the mutual fund concept has reached the United States. However, the mutual fund then was very different from the mutual funds we know now.

But with the creation of the Alexander Fund in Philadelphia, Pennsylvania in 1907, the modern version of the mutual fund started to take shape. Several features such as the semi-annual issues and the investors’ ability to make withdrawals on demand had been incorporated to the general concept.

The Evolution of Modern-Day Mutual Funds

The modern mutual fund came into existence with the creation of the Massachusetts Investors Trust on March 21, 1924. Roughly a year later, the Trust already has 200 shareholders and assets amounting to almost $400,000.00.

The fund went public in 1928. During the same year, Wellington Fund, the first mutual fund to include stocks and bonds, was launched. The value of stocks quadrupled in value, prompting investors to invest heavily on the market. As such, 1928 was considered as one of the most glorious years in the history of mutual funds.

Then came the Wall Street Crash of 1929 – the most devastating stock market crash the United States had ever seen. It was also the same event that ultimately led to the Great Depression. The value of stocks reached rock bottom and the demand for goods fell sharply.

Despite all the gloom and doom of those dark years, one good thing resulted from the Great Depression. The government finally took notice of the mutual fund industry and passed two important laws to protect the investors – the Securities Act of 1933 and the Securities Exchange Act of 1934.

Under the new law, mutual funds are required to register with the Securities and Exchange Commission (SEC). It further required mutual fund companies to provide sufficient information about the securities being offered for sale to its potential investors to avoid any deceit or misrepresentation in the process. The final touch was put in place with the enactment of the Investment Company Act of 1940 where additional regulations were imposed to provide greater disclosure and minimize conflict of interest.

These laws renewed the investors’ confidence in the stock market and once again, the mutual fund industry started to flourish. Who would have expected that by the end of the 1960’s there would be about 270 funds with an accumulated assets amounting to $48 billion? And that it will capture much public attention in the 1980’s and all throughout the 1990’s?

But that was just the beginning. The mutual fund industry is now gaining worldwide recognition and is expected to bloom even more in the years to come.

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