What are mutual funds

What are mutual funds

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Jump to navigation Jump to search A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. Mutual funds have advantages and disadvantages compared to direct investing in individual securities. The primary advantages of mutual funds are that they provide economies of scale, a higher level of diversification, they provide liquidity, and they are managed by professional investors. On the negative side, investors in a mutual fund must pay various fees and expenses. Primary structures of mutual funds include open-end funds, unit investment trusts, and closed-end funds. Mutual funds were introduced to the United States in the 1890s. The first open-end mutual fund with redeemable shares was established on March 21, 1924 as the Massachusetts Investors Trust.

In the United States, closed-end funds remained more popular than open-end funds throughout the 1920s. After the Wall Street Crash of 1929, the U. Congress passed a series of acts regulating the securities markets in general and mutual funds in particular. The Securities Act of 1933 requires that all investments sold to the public, including mutual funds, be registered with the SEC and that they provide prospective investors with a prospectus that discloses essential facts about the investment.

Securities and Exchange Commission, which is the principal regulator of mutual funds. The Revenue Act of 1936 established guidelines for the taxation of mutual funds. The Investment Company Act of 1940 established rules specifically governing mutual funds. 1950s, when confidence in the stock market returned. The introduction of money market funds in the high interest rate environment of the late 1970s boosted industry growth dramatically.

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