History of mutual funds
Historian are uncertain about the origin of the mutual funds or investment funds. Today we have clear definition of the mutual funds, regulator monitoring the functioning of the mutual funds but at the very beginning it was limited to certain feature.
History of mutual funds in the world
Year 1774 - The mutual fund was born from a financial crisis that staggered Europe in 1770s. In year 1774, a Dutch merchant named Adriaan van Ketwich created investment trust. The main idea behind forming the trust was to pool money from the many investors so that their risk would be diversified. In the current mutual fund setup investments are not backed by any other assets however financial risk of the investors in Adriaan’s funds was backed by income from plantation.
The financial risk to the mainly small investors was spread by diversifying across a number of European countries and the American colonies, where investments were backed by income from plantations, an early version of today’s mortgage-backed securities.
Adriaan van Ketwich called his close ended fund as “Eendragt Maakt Magt” which means “Unity creates strength”. Why it was closed ended because there was only 2000 units were available and it was open to public until all the 2000 units were purchased by the investors. After the initial subscription, fund was available by buying units from the existing unit holders in the open market. Adriaan van Ketwich fund survived until 1824.
Year 1822 - Some cite that close-end investment companies launched by King William I in the Netherlands in 1822 as the first mutual funds.The early mutual funds spread were of the closed-end variety, issuing a fixed number of shares. The next wave of near-mutual funds included an investment trust launched in Switzerland in 1849, followed by similar vehicles created in Scotland in the 1880s.
Year 1893 - The idea of pooling resources and spreading risk using closed-end investments soon took root in Great Britain and France, making its way to the United States in the 1890s. The Boston Personal Property Trust, formed in 1893, was the first closed-end fund in the U.S.
Year 1907 - The creation of the Alexander Fund in Philadelphia in 1907 was an important step in the evolution toward what we know as the modern mutual fund. The Alexander Fund featured semiannual issues and allowed investors to make withdrawals on demand.
Year 1928 - The creation of the Massachusetts Investors' Trust in Boston, heralded the arrival of the modern mutual fund in 1924. The fund was opened to investors in 1928.
Mutual Funds Today
2019 facts at a glance:
Total worldwide assets invested in regulated open-end funds* $54.9 trillion
United States $25.7 trillion
Europe $18.8 trillion
Asia-Pacific $7.3 trillion
Rest of the world $3.1 trillion
Mature economies such as the U.S. have an asset to GDP ratio of 113% with 44% of households having investments in MFs. Even an emerging economy like Brazil is at 59% of GDP.
Sources: