History Of Mutual Funds

It may seem hard to believe given its fairly recent appearance in the public consciousness, but mutual funds have actually been around for more than 70 years, when they were first made available in the United States. It was in March 21, 1924 that the first open-end mutual fund was founded in the country. Called the Massachusetts Investors Trust, it grew to about 200 shareholders and almost $400,000 in total assets only one year after beginning operations.

The entire industry–including a few closed-end funds–nevertheless had a fairly modest beginning, with less than $10 million total assets in 1924. Its growth proceeded steadily however, and by the end of December 1999 there were more than 8,000 mutual funds recorded with well over $6.8 trillion in combined assets.

The slow growth years

As we mentioned earlier, the history of mutual funds has been that growth in the mutual funds industry was a bit sluggish after its introduction, particularly during its first 27 years. In 1951, the number of mutual funds barely reached the 100 mark, and the number of shareholders were recorded at just a little over one million. In 1954 however, it was clear that the stock market was on the upswing, and mutual funds exceeded its 1929 peak. By the end of the fifties there were just over 150 mutual funds in existence, with combined assets of nearly $16 billion.

It was in 1967 when mutual funds hit their highest mark so far–or so it seemed. Figures of the earnings for one quarter showed at least 50%, representing an average return of 67%, but this was an artificial situation bolstered by the practice of borrowing money, and entailed risky options, as well as artificially boosting returns with letter stock. Nevertheless, the end of the 60s saw almost 300 mutual funds in existence, with total assets of nearly $50 billion.

The birth of index funds

In 1976, the first retail index fund was established by John C. Bogle. Known as First Index Investment Trust, the fund is now known as the Vanguard 500 Index, and is currently the largest index fund in the world. With Peter Lynch taking over the reigns at Fidelity Magellan, the company became the largest stock mutual fund in the world, although it has since been surpassed by Vanguard. The end of the 70s saw more than 500 mutual funds in existence with a combined worth of more than $90 billion.

Mutual funds after the introduction of the IRA

The passing of the Individual Retirement Account by Congress in 1981 heralded a new period of intense growth in mutual funds and by the end of the decade, there were almost 3,000 mutual funds in existence, with well over $900 billion in combined assets.
By December 1998, the total value of stock mutual funds was recorded at $2.981 trillion or almost 54% of the total assets of the mutual fund industry.

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