A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
Have mutual funds been around for a long time?
Collective and joint investment schemes have long existed in various traditional formats around the world. The mutual fund as we know it was born in 1924, with the creation of the Massachusetts Investors Trust.
The growth of the mutual fund sector has been accompanied by three major trends:
- Impressive growth in assets under management as more investors embraced mutual funds.
- Stricter regulation that ensured investor protection and proper supervision of the fund management sector.
- Introduction of more innovative products that adapt to the needs of different customers; from long-term retirement planning to short-term cash management.