Today, there are, literally, hundreds of mutual funds in the market. They can be municipal bond funds, tax exempt bond funds or closed end bond funds. For many decades, they have been one of the most important channels of investment for millions of Americans.
And it doesn't seem that they will disappear anytime soon. But how do they work exactly? Are they really a good way to invest your money? These and many more questions will be answered in the following paragraphs.
With time, mutual funds will generate gains or losses. In the case of gains, they will be passed to the investors, minus a management fee for the fund manager. Also known as an open-ended company, mutual funds are one of the three types of investment companies that exist in the US. The other two are close-ended funds and unit investment trusts (UITs).
The history of mutual funds remounts to the roaring twenties. In 1924, the first mutual fund appeared, under the named of Massachusetts Investors Trust. Their popularity continued to grow until the market crash of 1929. In order to fix any instabilities in the market, the Congress passed a law under which all mutual funds had to be registered in the Securities & Exchange Commission (SEC).
Almost 25 years after their creation, the number of mutual funds increased to 100, and they amassed 1 million investors. By the end of the decade, the assets surpassed the $15 billion. By the end of the sixties, that number jumped to almost $50 billion. And, today, there are more than 8,000 mutual funds, with combined assets that surpass the $9,000 trillion.
And it doesn't seem that they will disappear anytime soon. But how do they work exactly? Are they really a good way to invest your money? These and many more questions will be answered in the following paragraphs.
What Are Mutual Funds?
A mutual fund is considered a form of collective investment. In this financial instrument, investors put their money in different type of securities, like bonds or shares. The fund manager uses this money for investing it in securities that he has previously analyzed. For example, he may invest highly in Brazilian companies that produce ethanol due to the future potential of this fuel. Another possibility is a software company at Israel, who develops software for the defense sector.With time, mutual funds will generate gains or losses. In the case of gains, they will be passed to the investors, minus a management fee for the fund manager. Also known as an open-ended company, mutual funds are one of the three types of investment companies that exist in the US. The other two are close-ended funds and unit investment trusts (UITs).
The history of mutual funds remounts to the roaring twenties. In 1924, the first mutual fund appeared, under the named of Massachusetts Investors Trust. Their popularity continued to grow until the market crash of 1929. In order to fix any instabilities in the market, the Congress passed a law under which all mutual funds had to be registered in the Securities & Exchange Commission (SEC).
Almost 25 years after their creation, the number of mutual funds increased to 100, and they amassed 1 million investors. By the end of the decade, the assets surpassed the $15 billion. By the end of the sixties, that number jumped to almost $50 billion. And, today, there are more than 8,000 mutual funds, with combined assets that surpass the $9,000 trillion.
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