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Investing Education: Mutual Funds and the Historical Perspective

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The financial system of a nation consists of financial institutions, markets, services and instruments which are closely related and work in conjunction with each other. Even though the global economy has undergone revolutionary changes, a common investor is still hesitant to invest his hard earned money in a variety of corporate services. The birth of Mutual Funds has helped in optimizing the funds of the common investor in a significant way.

Origin and Denotation of Mutual Funds

In finance, the word ‘mutual’, derived from the Latin word ‘mutuus’ refers to the bilateral trust that two or more parties share a common objective. ‘Fund’, derived from Latin word ‘fundus’ refers to a reserve of money set aside for a specific purpose. With this intention, a Mutual Fund brings together a group of investors who pool in their stocks, bonds and other securities which are in turn invested in a diversified and professionally managed basket of securities. The income earned through these investments is shared by its unit holders in proportion to the number of units owned by them.

History of Mutual Funds

According to reputed historians, during the early stages of commercial and financial trading, the Egyptians and Phoenicians were selling shares in vessels and caravans in order to mitigate the risk of these hazardous ventures. In recent times, Mutual Funds trace their history back to the trust created by the King of the Netherlands in 1822 named “Société Générale de Belgique” which allowed beneficiaries to hold interests in government loans. The modern concept of Mutual Funds also has its origins in Foreign and Colonial Government Trust of London in 1868 and Scottish American Trust in 1873.

In modern times, Massachusetts Investors Trust of Boston, Massachusetts is credited with pioneering the very first open end mutual fund, which was formed on March 21, 1924. The fund went public in 1928. With an open-end approach, the trust allowed a continuous issue and redemption of units by the MFS Investment Company. After one year, the fund grew from $50,000 to $392,000 in assets and 200 shareholders. During the economic depression of 1929, it lost 83% of its value, but by the end of 1936, the fund increased to $128 million.1 The person who was associated with the trust for the longest period of time was Mr. Merrill Griswold, who understood the investor’s role and encouraged the fund’s early practice of providing shareholders with reports on all aspects of fund’s operations. As of February 28, 2017, MFS has $440 billion in assets.2

Current Scenario

Today, there are an estimated 80,000 mutual funds across the world with around $40 trillion assets under maintenance as of the third quarter of 20163. During the 1990’s the global economy saw an increasing presence of large multinational financial groups in a large number of countries and the strong performance of bond and equity markets resulted in the global growth of the mutual fund industry as we see today.


Investing Education: Mutual Funds and the Historical Perspective


Footnote Sources:

  • Fund Governance: Legal Duties of Investment Company Directors By Robert A. Robertson
  • MFS Investment Management® Corporate Website
  • Investment Company Institute Corporate Website
  • Free Third Party Websites
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