- The first modern mutual fund was the Massachusetts Investors Trust started in 1924 and made available to the public in 1928. From this fund grew MFS which was the first modern mutual fund company. The stock market crash in 1929 and the resulting economic depression led to the regulation of the mutual fund industry in the form of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940. The various regulatory agencies continue to tweak the rules and regulations for mutual funds in order to protect investors.
- Mutual funds make up the majority of "Main Street" America's investments. This is due both to the easier nature of investing in mutual funds versus individual securities, as well as the fact that many American's now have a retirement account in the form of a 401(k) or similar plan, most of which permit investment via mutual funds. There is over $1 trillion invested in American mutual funds today.
- There are many different types of mutual funds. One way to categorize funds is by what they invest in. Mutual funds range from broad based investment strategies such as stock funds versus bond funds to vary narrowly-based investments such as only Korean technology company stock. Another way to differentiate mutual funds is by the fees they charge dividing them into no-load (no sales charge) and load funds. Also, mutual funds can be divided into actively managed (traditional) mutual funds and passively managed (index) mutual funds.
- The many different types of mutual funds allows investors to customize an investment portfolio for themselves. An investor desiring broad based exposure to the U.S. stock market might choose to buy a single index mutual fund, whereas an investor looking to specifically tailor precise percentages among U.S., International, stocks, bonds, commodities and certain market sectors could do so by selecting several funds to achieve just such a diversification. The various fund types also allows for mutual fund companies to target marketing to certain investors.
- The many types of mutual funds provide an array of opportunities, but also increase the complexity of investing in mutual funds. An investor should consider several factors when choosing mutual funds including how well the objective of the mutual fund matches the investor's objective, the track record of the mutual fund, the availability of other similar mutual funds and the volatility of the funds which can vary widely between and within categories.
- The multiple types of mutual funds can lead to confusion among investors who are not experienced investors. For example, many investors seeking to invest in gold, invest in mutual funds with the word gold in their name without realizing that many such funds invest not in gold, but in the companies that are involved in the gold industry such as mining companies. Another potential problem involves chasing investing fads via hastily created funds aimed to capitalize on such popularity. A good example of this is the many Internet funds created during the last stock market bubble.
- Experts frequently preach the value of diversification to investors. Using the many types of available mutual funds is a good way to achieve that diversification particularly when each selection is carefully researched. However, jumping on many different narrowly based mutual funds may actually provide less diversification for the investor than using a carefully chosen selection of broader mutual funds.
