The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in Europe ('investment company with variable capital'), and the open-ended investment company (OEIC) in the UK.
[5] Mutual funds have advantages and disadvantages compared to direct investing in individual securities.
The advantages of mutual funds include economies of scale, diversification, liquidity, and professional management.
A single mutual fund may have several share classes, for which larger investors pay lower fees.
These funds may be sold throughout the European Union and in other countries that have adopted mutual recognition regimes.
In response to the financial crisis of 1772–1773, Amsterdam-based businessman Abraham (or Adriaan) van Ketwich formed a trust named Eendragt Maakt Magt ("unity creates strength").
[11] One of the earliest investment companies in the U.S. similar to a modern mutual fund was the Boston Personal Property Trust that was founded in 1893; however, its original intent was as a workaround to Massachusetts law restricting corporate real estate holdings rather than investing.
[16] After the Wall Street Crash of 1929, the United States Congress passed a series of acts regulating the securities markets in general and mutual funds in particular.
[18] The introduction of money market funds in the high-interest rate environment of the late 1970s boosted industry growth dramatically.
Rex Sinquefield offered the first S&P 500 index fund to the general public starting in 1973, while employed at American National Bank of Chicago.
[19] Batterymarch Financial, a small Boston firm then employing Jeremy Grantham, also offered index funds beginning in 1973 but it was such a revolutionary concept they did not have paying customers for over a year.
The scandal was uncovered by former New York Attorney General Eliot Spitzer and led to an increase in regulation.
In a 2007 study about German mutual funds, Johannes Gomolka and Ralf Jasny found statistical evidence of illegal time zone arbitrage in trading of German mutual funds.
In the European Union, funds are governed by laws and regulations established by their home country.
In the United States, open-end funds must be willing to buy back shares at the end of every business day.
In other jurisdictions, open-end funds may only be required to buy back shares at longer intervals.
In the United States at the end of 2019, there were 7,945 open-end mutual funds with combined assets of $21.3 trillion, accounting for 83% of the U.S.
In the United States, at the end of 2019, there were 500 closed-end mutual funds with combined assets of $0.28 trillion.
For example, a capital appreciation fund generally looks to earn most of its returns from increases in the prices of the securities it holds, rather than from dividend or interest income.
In the United States, money market funds sold to retail investors and those investing in government securities may maintain a stable net asset value of $1 per share, when they comply with certain conditions.
In the United States, at the end of 2019, assets in money market funds were $3.6 trillion, representing 14% of the industry.
In the United States, at the end of 2019, assets in hybrid funds were $1.6 trillion, representing 6% of the industry.
A mutual fund pays expenses related to buying or selling the securities in its portfolio.
Shareholders may be required to pay fees for certain transactions, such as buying or selling shares of the fund.
The management fee and fund services charges are ordinarily included in the expense ratio.
Fund managers counter that fees are determined by a highly competitive market and, therefore, reflect the value that investors attribute to the service provided.
It is usually expressed as a per-share amount, computed by dividing net assets by the number of fund shares outstanding.
Funds must compute their net asset value according to the rules set forth in their prospectuses.
All of them invest in the same portfolio of securities, but each has different expenses and, therefore, different net asset values and different performance results.
Turnover is the lesser of a fund's purchases or sales during a given year divided by average long-term securities market value for the same period.