Mutual funds are a collective investment scheme that was first launched in 1924 courtesy of the Massachusetts Investors Trust Company. The money of many investors is used collectively not only to invest but also to offset the cost of fees for managing the accounts. Mutual funds are the responsibility of a fund manager and they trade that money with regularity.
From the original introduction of mutual funds, when the Massachusetts Investors Trust developed and issued the offering, the business has evolved into a $26 trillion dollar industry. After the original enthusiasm for mutual funds, there have been setbacks, most specifically through the 1929 stock market crash.
However, in 1940, the Investment Company act was created which provided federal regulation and control over the investment industry. The act provides guidelines and rules for the proper steps a company and their “money manager” must follow to generate a mutual fund. Please note, mutual funds are not an FDIC insured property as the FDIC was created by a completely different act in response to the Great Depression.
After research and consideration, money managers operate and build a mutual fund, which is also called a “company.” It is this money manager (registered with the SEC) who invests the capital and attempt with the goal of producing capital gains and income for the fund’s investors and the company who created them funds. Technically a “mutual fund” is the company of the pooled investment resources.
The company or mutual fund groups the money of investors and it is then diversified in a fund made up stocks, bonds, short-term money-market instruments and other securities or assets. The mutual fund may have many holdings and offerings that are considered their portfolio.
Although mutual funds are considered a riskier type of investment, they are can be a good tool for diversifying one’s investment portfolio. Contact a SEC registered investment advisor to discuss your options.