The history of mutual funds in the United States takes us back to 1924, when three Boston securities executives pooled their money to create a mutual fund. It was on March 21, 1924 that a first official mutual fund was started, and it was called Massachisetts Investors Trust. After just one year, the Massachusetts Investors Trust grew from $50,000 in assets in 1924 to $392,000 in assets. Today there are over 10,000 mutual funds in the U.S. market with assets valued around $7 trillion. In recent years investing in mutual funds has grown considerably, and that growth can be attributed to popularity of Individual Retirement Account (IRA) provisions made in 1981. IRA permitted individual market investing of up to $2,000 a year. Mutual funds are now popular in employer-sponsored defined contribution retirement plans (401K), IRAs and Roth IRAs. Mutual funds offer liquidity and unique diversification capabilities.
A simplified market definition of a mutual fund is that it is just a collection of stocks and/or bonds. One can look at a mutual fund as a company that brings together a group of people interested in investing and pools their money in stocks, bonds, and other securities. Mutual fund is a stock that gives small investors access to a well diversified portfolio of equities, bonds, and other securities. Each investing shareholder participates in the gain or loss of the fund. Mutual fund portfolios are organized to meet the investing objective stated in prospectus. The net asset value (NAV) of a mutual fund is calculated daily.
Parties interested in investing in some mutual funds (no-load) can do so by contacting the fund companies directly. Other funds are sold on the market through brokers, banks, financial planners, or insurance agents. Mutual funds were commonly sold by third party participants at a price of a sales fee, also known as a load. Today, however, more and more funds can be purchased through no-transaction fee programs that offer funds of many companies. Sometimes referred to as a "fund supermarket," this service lets you consolidate your holdings and record keeping, and it still allows you to buy funds without sales charges from many different companies. Some of the big names in mutual funds include companies like Schwab's OneSource, or Fidelity's FundsNetwork.
There are several key factors that make investing in the mutual fund market attractive to investors. For those individuals who do not have time or experience in investing in stock market, mutual fund offers professional management of their money. Furthermore, by owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out and your investment is less volatile. The concept is that by diversification, an investor’s loss in one stock is offset by gains in others. It would be very expensive for an individual to build his own portfolio of this kind. Just as with an individual stock, mutual funds are liquid and can be turned into cash at any time.
