Information on Mutual Fund Investment

For the small investor, a mutual fund can be the best option for investing. Mutual funds allow many small investors to pool their capital, and this allows the firm to diversify the total investments. In other words, it allows a small investor to participate in the market while allowing them to spread their capital through many different investments. This increases their diversification, and thereby, lowers individual risk.   

Historical Information

Mutual funds are one of the oldest types of financial brokerage firms in the country. The first mutual funds were created in 1924, and they experienced rapid growth. In fact, they grew so quickly that congress started regulating the business model as soon as 1933. Today, mutual funds are the largest single form of financial institution in the world. There are almost 9,000 mutual funds licensed in the United States, and they manage assets that total over 13 trillion dollars.

How Mutual Funds Work

Mutual funds still operate in their original fashion. Generally, mutual funds target investors who have limited starting capital and limited experience. The investor deposits their capital with the mutual fund by purchasing a share of the fund. Their capital is then managed by a trained broker who seeks to obtain the highest possible return for the capital. Generally, mutual funds earn money by one of two methods. First, in exchange for managing investors' capital, mutual funds retain a portion of any profits generated. Second, they charge a per transaction fee. However, as the market for investment services has changed, many mutual funds no longer charge a per transaction fee. Instead, they have been forced to adopt the percentage based fee structure.