The first official mutual fund (open-ended) was introduced in the United States of America in the 20th century. The creation of the Massachusetts Investors’ Trust in Boston, Massachusetts, announced its arrival in 1924. The fund went public in 1928, eventually creating the mutual fund firm, known as MFS Investment Management.
State Street Investors’ Trust was the custodian of the Massachusetts Investors’ Trust. Later, State Street Investors started its own fund in 1924, under the leadership of Richard Paine, Richard Saltonstall, and Paul Cabot. Saltonstall was also affiliated with Scudder, Stevens and Clark, an outfit that would launch the first no-load fund in 1928.
The year 1928 also saw the biggest advancement in the history of US Mutual Fund, Creation of the Wellington Fund. Wellington—which is now part of Vanguard—was the first mutual fund to own stocks and bonds in one ticker. By the end of 1929, there were 19 open-ended mutual funds and roughly 700 closed-end funds in the U.S. With the stock market crash of 1929, the dynamic began to change as highly-leveraged closed-end funds were wiped out and small open-end funds managed to survive.
Expansion & Regulation:
Taking into account the growth of Mutual Fund Industry, Securities and Exchange Commission (SEC) is created and Securities Act was passed in 1993. In order to protect the investors’ interest and better regulation of MF Industry, Securities Exchange Act was enacted in 1934 and Investment Company Act was put in place in 1940.
Since 1950s Mutual Fund Industry continued to expand in the US. By 1951, there were more than 100 mutual funds operating and more than 150 additional funds were created. The 1960s saw the birth of aggressive growth funds, which bet on high tech stocks.
The 1970s saw the creation of Index Fund i.e. a mutual fund that would hold all the stocks of a particular market measure. William Fouse and John McQuown of Wells Fargo established the first index fund in 1971. However, it was Vanguard’s John Bogle who made it memorable in 1974 by offering it to retail investors. The first money market fund, The Reserve Fund also debuted in 1971, while 1976 saw the first municipal bond launch.
Mutual Funds continued to evolve in the 1990s as well. Exchange Traded Funds (ETFs) were created in 1993. Despite the 2003 mutual fund scandals and the global financial crisis of 2008-2009, mutual funds play a key role in U.S. household finances. At the end of 2016, 22% of household financial assets were held in mutual funds. Their role in retirement savings was even more significant since mutual funds accounted for roughly half of the assets in individual retirement accounts, 401(k)s and other similar retirement plans.
As of June 30, 2017, the mutual fund industry had approximately $17.4 billion in total assets, a gain of nearly 10% when compared to the same day one year earlier, a majority which has come from the equity funds. Owing to the strong returns (around 15-20 percent) generated by them. Nearly 54% of the total mutual fund assets belong to the equity funds and the rest is split among bond, money market, and balanced funds.
The number of mutual funds in existence has fluctuated since its peak in 2001. That number shrank to 7,556 in 2010 but has since risen to 8,049 in 2017. Currently, 59% of funds focus on equities, 27% are fixed-income, 9% are balanced funds and the remaining 5% are money market funds.
Despite the threats presented by ETFs, challenging govt. regulations, the US mutual fund industry remains healthy and fund ownership continues to grow.