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The History of Mutual Funds The concept of pooling money together for investing purposes started in Europe in the mid-1800s The first appearance of a similar fund in the United States was in 1893 when a fund was established for the faculty and staff of Harvard University These early pooled-funds trusts resembled closed-end mutual funds The first official open-end mutual funds was born in the United States on March 21 1924 On this day a shoe salesman Edward G Leffler and two stockbrokers Hatherly Foster Jr and Charles H Learoyd pooled their money together in Boston Massachusetts to form the Massachusetts Investors Trust The Massachusetts Investors Trust grew from 50000 to 392000 in the first year Growth for mutual funds was slow in the beginning but funds gained popularity in the 1940s and 1950s In February 2001 the mutual fund industry held 6897 trillion in assets according to the Investment Company Institute Mutual funds continue to grow in popularity due to ease-of-use liquidity and unique diversification capabilities 1 Mutual funds have been around much longer than most investors realize The industry traces its roots back to 19th century Europe In 1868 the Foreign and Colonial Government trust which resembled a closed-end mutual fund was formed in London This trust promised investors of modest means the same advantages as the large investors by spreading their investment over a number of different stocks Most of the early British investment companies and their counterparts in the United States resembled todays closed-end funds They sold a fixed number of shares at a priced determined by supply and demand Until the 1920s though most American investors continued to put their money in banks or buy individual shares of stock Investing in capital markets was still reserved primarily for the wealthiest investors The establishment of the Massachusetts Investors Trust changed this The open-ended trust gave investors the option to sell back their shares in the
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