Actually, 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 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 for subscriptions from investors to form a trust to provide an opportunity to diversify for small investors with limited means.
The creation of the Massachusetts Investors’ Trust in Boston, Massachusetts, prefigured the arrival of the modern mutual fund in 1924. The fund went public in 1928, eventually depositing the mutual fund firm known today as MFS Investment Management. A earth-shattering 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.
By 1929, there were 19 open-ended mutual funds competing with nearly 700 closed-end funds. With the stock market crash of 1929, the dynamic began to change as highly-leveraged closed-end funds were wiped out and small open-end funds managed to survive. The stock market crash of 1929 and the Great Depression that followed greatly hampered the growth of pooled investments until a succession of landmark securities laws, beginning with the Securities Act, 1933 and concluded with the Investment Company Act, 1940, reinvigorated investor confidence and the mutual fund industry continued to expand with establishment of new funds and billions of dollars in new asset inflows.
History of Mutual Fund in India
Mutual Funds in India originated in the second half of the 19th century. Financial Association of India and China was the first investment trust formed in India in 1869. However, the growth of investment trust business started only after 1930. The need for the establishment of Unit Trust type of institution was felt in 1931 by the Indian Central Banking Enquiry Committee. The Committee observed in its report that an immeasurable benefit to India is bound to grow from the establishment and proper working of unit trusts, and the assistance which they will give to the investor in the creation of intermediate securities which do not exist now, in providing a channel for investment in industrial and other fields, where the primary investor would be too scared of too ignorant.
The first Industrial Investment Trust was established in 1933 by M/s Premchand Roychand in Bombay. After the establishment of this trust the number of other trusts were formed, such as Investment and Finance Company, Kolkata, General Investment and Trust Company, Kolkata, Tata Investment Trust, Bombay. Most of the Investment Trusts were established by the industrial groups. The Trusts are organized as private companies. The investment trusts were used as a tool to control more and more unit by owning and controlling the shares. In 1954, the Shroff Committee also made the recommendation in its favor.
The growth of Mutual Funds in India is divided into six different phases depending on the structural changes which have taken place in the mutual fund industry.
We will try to cover different phases of Mutual Fund development for India in next blog.