Jul 05, 2017 4 min read

Do You Know the History of Mutual Funds?

How did a small idea develop into a giant industry today? Know by reading history of the mutual funds.
One of the best ways of investing money, i.e., mutual funds have become quite popular with time. Today, many people invest in them to expand their wealth, but only a few know about their history. Not likely to a sudden discovery or an unexpected invention, they evolved spanning several centuries and nations.

This idea of inviting the capital for investment purposes was developed a long time ago in the 1700s. Let’s take a brief view of the history of mutual funds:

18th Century - The Beginning : Let’s skip back to the time of 18th century when the root concept of mutual fund was developed in Netherlands. A Dutch merchant, Abraham Van Ketwich invited subscriptions from people to form a trust which aimed to provide an opportunity to diversify the capital of the small investors with the modest means. This arrangement was named “Eendragt Maakt Magt” which means “Unity Creates Strength.” It headed a great way forward and 30 more negotiates came further during the 1780s.

19th Century - Spreading Across Europe : The idea of pooling capital and sharing risks and profits was discovered in Great Britain and France in 1890s. And, as the time passed over to the 19th century, Ketwich’s idea was spread across all of the continents, especially in England and France. The English refined the structure of the negotiate and used it to provide help to expand the British Empire. With the passage of time, the idea & structure of inviting subscription was transformed into the investment trust. In 1868, the first ‘official’ investment trust was founded in London which was named as “The Foreign and Colonial Government Trust, ” whose shares are still traded on the London Stock Exchange. Further, as the involvement of people increased in mutual funds, its idea got expanded and was adopted by the America as well. “The Boston Personal Property Trust” became the first closed-ended fund of the America which was formed in 1893.

20th Century - Took the Real Shape : As the time went on, the small idea grew up into a big structure of investing money during 20th century. By analysing the requirements and objectives of the investor, changes were made in the structure and features of the process of pooling capital. On March 21st, 1924, the Massachusetts Investors Trust (MITTX) was created with the fundamental distinction that open-ended funds must buy back their shares from the investors at the end of every business day. The real shape of mutual funds which we know today, was developed after the establishment of MITTX.

The Mutual Fund Industry in India : With the passage of time, many initiatives were taken to enhance the idea of attracting capital for investment. This process of pooling capital was also started in India late in 1963, with the formation of Unit Trust of India (UTI). The first scheme launched by UTI was Unit Scheme 1964. Later in the 1970s and 80s, it started making changes in the plans and launched new schemes to suit the needs of different classes of investors. While enjoying monopoly in the Indian market, it attained the Asset Under Management (AUM) of around Rs. 600 crore by 1984. And in next four years, i.e., by 1988, the total AUM of this fund house reached to Rs. 6700 crore. Later on, during 1987 to 1996, many public, and private sector players entered into the market. Let’s know about them

  • In November 1987, the State Bank of India established the first non-UTI Fund which was named as SBI Mutual Fund .
  • LIC Mutual Fund, GIC Mutual Fund, Canbank Mutual Fund, Indian Bank Mutual Fund, PNB Mutual Fund, and Bank of India Mutual Fund were also established during this period.
  • In 1993, the permission was granted to the private sectors to access the mutual fund industry. It brought a new era in the market as the private companies came up with new strategies, latest product innovations, the excellent management techniques, and new designs of investment plans. By the end of 1995, there were around 11 private fund houses launched in India.

In 1996, an extensive set of rules and policies was introduced by SEBI (Mutual Funds) Regulations. These regulations set the standards and guidelines for all the schemes in the country. Since the end of the 20th century, this industry has been growing immensely in India and has spread across the horizon.

After making a lot of changes and bringing new ideas, today more than 14,000 mutual funds are available for the investors in the industry. We can see that the idea of pooling small amounts of capital to own securities has become a large success in today’s market. It is an unstoppable process which will continuously be developed and will be a key instrument for retail investors to build wealth. We, the team MySIPonline, owe Abraham Van Ketwich as well as the other innovators a debt of gratitude for the ideas with which they have evolved the mutual fund industry.