Exploring the history of mutual funds reveals a fascinating journey that shaped modern investment strategies. This blog will take you back to the inception of the very first mutual fund, tracing its origins, evolution, and impact on today's financial landscape. Join us as we uncover the story behind the pioneering fund that paved the way for countless investors worldwide.
What was the first mutual fund?
“Massachusetts Investors Trust” is the first mutual fund ever. On March 21, 1924, this mutual fund was established in Boston.
Edward C. Johnson II, an investment banker, was the person who devised this financial instrument. His idea behind creating the first mutual fund ever is to pool money from a large number of investors so that he can buy a wide range of stocks to create a diversified portfolio. Edward wanted to provide small investors with the dual advantage of:
- Stock market access
- Professional management of their investments
You might wonder what is so amazing about accessing the stock market. Anyone can do that. But no, here we are talking about a time in the early 1900s, just six years after World War I ended. Accessing the stock market was not easy for small investors.
Moreover, getting access to professional management for their investments was also unheard of in those times. Mutual funds were a revolutionary financial instrument at that time because it was the first time small investors experienced the benefits of how professional management of their investment can strike a balance between return and risk.
It was the first time the world was witnessing the democratisation of investing. This innovative approach to investing made it possible for a larger population of smaller investors to participate in the stock market.
The Massachusetts Investors Trust was not only the first mutual fund in the world but also laid the foundation for the mutual fund industry that we witness currently. It revolutionised the way we invest. After the introduction of this financial instrument, the financial markets witnessed a steep growth in the participation of smaller investors. It swelled the total amount of investment in the financial world by leaps and bounds.
However, many believe that a Dutch merchant named Adriaan Van Ketwich was the person who introduced the first mutual fund ever. The year was 1774 and its name was “Eendragt Maakt Magt,” which means “Unity Creates Strength.” As this information is unconfirmed, it is not considered the first mutual fund ever. Instead, the first mutual fund in the USA, the Massachusetts Investors Trust (MITTX) of 1924 is considered the first ever mutual fund in the world.
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Which was the first mutual fund in India?
"Unit Trust of India" or UTI is the first mutual fund in India. In February 1964, a parliamentary act was passed to create UTI. The first-ever mutual fund scheme in India was Unit Scheme 1964 (US ’64). It played an important role in pooling the savings of a wide range of investors and then directing them into productive investments. This, in a way, helped the Indian economy grow.
The Reserve Bank of India (RBI), the apex bank of India, was the owner of UTI. In addition, under RBI’s regulatory framework (Regulatory and administrative control), the Unit Trust of India started functioning.
Though the first mutual fund in India, Unit Trust of India (UTI), started its journey in February 1964, the Government of India introduced the concept of mutual funds back in 1963.
Also read: What is a total expense ratio
Why was UTI established?
By establishing the Unit Trust of India, the Union government and RBI wanted to:
- Encourage both saving and the habit of investment
- Participate in a corporation’s gains and income generation from the management, holding, acquisition, and disposal of security assets.
The beginning of the mutual fund industry led to a new era of financial growth. It is that moment in the history of India’s financial market that laid the foundation for the development of a robust mutual fund market.
Conclusion
According to official records, Massachusetts Investors Trust (MITTX) is confirmed as the first mutual fund in the USA and the world. An investment banker named Edward C. Johnson II created this mutual fund in 1924. MITTX mutual fund democratised and revolutionised the financial investment scenario in the USA. Unlike earlier, after the introduction of the Massachusetts Investors Trust, investing was not a matter of the elites only. Small investors are now able to get the benefits of investing in the stock market and also get the advantages of professional fund management by investing a small amount of money.
In India, the Unit Trust of India (UTI) is the first mutual fund. It started its journey in February 1964 and its first scheme was US ’64 (Unit Scheme 1964). UTI has introduced many mutual fund schemes over the years. Their main aim was to meet the needs of a wide array of Indian investors. They introduced new schemes under three broad categories of mutual funds and they are:
The mutual fund scheme that you choose depends upon your risk-taking potential and expectation of return. So, choose your scheme prudently to achieve your financial goals. To make the right choice, you can invest in any of the two ways: lumpsum investment or SIP investment.
If you want to get the advantages of mutual funds, check 1000+ mutual fund schemes listed on the Bajaj Finserv Mutual Fund Platform. Now, compare mutual funds by calculating potential ROI with the help of the SIP calculator or lumpsum calculator. Once you have compared and chosen the right scheme, you can invest for the optimum result.
