Mutual Funds
A mutual fund is a investment instrument that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager or a team of managers. The managers are responsible for investing the pooled money into securities most often stocks, bonds, cash equivalents and other investment vehicles. Depending on how these invest vehicles perform will have a direct correlation on how the mutual fund performs.
Flow of a Fund
The flow chart on the left identifies the channels in which a mutual fund is formed. For more info on this chart go to www.appuonline.com
There are several thousand mutual funds in the United States alone. However all mutual funds follow the same basic flow. A community of investors pool there money together, the investors receive units of the of that mutual fund based on amount contributed. The Funds management invests the money into investment vehicles that are consistent with the funds objective. The management team realizes gains or loses depending on the performance of the invest vehicles and distributes them back to the mutual funds investors.
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Little History on Mutual Funds
For complete history go to http://www.investopedia.com/articles/mutualfund/05/MFhistory.asp
Historians are uncertain of the origins of investment funds; some cite the closed-end investment companies launched in the Netherlands in 1822 by King William I as the first mutual funds, while others point to a Dutch merchant named Adriaan van Ketwich whose investment trust created in 1774 may have given the king the idea. Van Ketwich probably theorized that diversification would increase the appeal of investments to smaller investors with minimal capital. The name of van Ketwich's fund, Eendragt Maakt Magt, translates to "unity creates strength". 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.
The Modern Mutual Fund
The creation of the Massachusetts Investors' Trust in Boston, Massachusetts, heralded the arrival of the modern mutual fund in 1924. The fund went public in 1928, eventually spawning the mutual fund firm known today as MFS investment management. In 1928 Richard Saltonstall launched the first no-load fund. A momentous year in the history of the mutual fund, 1928 also saw the launch of the Wellington Fund, which was the first mutual fund to include stocks and bonds, as opposed to direct merchant bank style of investments in business and trade.
Mutual Funds today
In 1954, the financial markets overcame their 1929 peak, and the mutual fund industry began to grow in earnest, adding some 50 new funds over the course of the decade. The 1960s saw the rise of aggressive growth funds, with more than 100 new funds established and billions of dollars in new asset inflows. In 1971, William Fouse and John McQuown of Wells Fargo Bank established the first index fund, a concept that John Bogle would use as a foundation on which to build The Vanguard Group, a mutual fund powerhouse renowned for low-cost index funds. The 1970s also saw the rise of the no-load fund. This new way of doing business had an enormous impact on the way mutual funds were sold and would make a major contribution to the industry's success. Today In 2008 the United States alone has more than 10,000 mutual funds, and if one accounts for all share classes of similar funds, fund holdings are measured in the trillions of dollars.
NOTE (TSP C, S and I funds are index funds) For more info go to the TSP page at the top.