MUTUAL FUND

A mutual fund is a large, diverse group of stocks and/or bonds in which an individual may invest. There are three basic types of mutual funds. Money market funds invest in certificates of deposit, U.S. Treasury bills, and other low-risk, short-term securities that provide a safe, low-return alternative to checking accounts. The medium-risk bond and income funds invest in both stocks and corporate and government debt, with the goal of invest exclusively in the stock of corporations. The higher risk equity fund invests in the stocks of corporations and comes in all shapes and sizes. Mutual funds are also classified as "closed-end" (a fixed number of shares are sold to the public) and "open-end" (shares are sold to as many people as want them).

Low, medium, and high risk mutual funds each have many options for investment. One class of higher-risk funds is the aggressive growth equity fund, which may be suitable for an individual looking for a quick return on an investment. A less risky kind of mutual fund, the index equity fund, takes the process of picking stocks out of the hands of mutual fund managers and instead invests in companies listed in such stock market indices as the Standard and Poor's 500. Sector equity funds specialize in specific segments of the economy, such as telecommunications, biotechnology, or Internet stocks. While many opportunities exist for domestic investment, an individual can also look to the foreign markets as a place to invest money. International equity funds focus on the stocks of non-U.S. companies and may be region specific, such as an Asia or Latin America fund.

Mutual funds first appeared in Europe in the nineteenth century and were well established in the United States by 1900. Not until 1924, however, did the first modern open-end mutual fund appear—it boasted forty-five stocks and $50,000 in assets. The stock market crash of 1929 soured an entire generation on stock investing, however, and it took new government safeguards and the post-World War II (1939–1945) economic boom to convince U.S. citizens to return to stock investing. In the 1940s there were only about 80 mutual funds with assets of $500 million. In 1948 one of the first sector funds, Television Funds, Inc., was launched; it was followed in 1953 by the first international mutual fund. The number of funds edged up to 100 in the 1950s, but by 1952 still only onequarter of one percent of the U.S. population owned stocks. The first aggressive growth mutual fund appeared in the 1960s, and in the 1970s money market funds and bond and income funds became more common. Fueled by the beginning of one of the longest bull markets in U.S. history in 1982, the number of funds grew fivefold in the 1980s. By the late 1990s, the nation's 6,700 mutual funds owned 22 percent of the entire U.S. stock market and held assets of more than $4.5 trillion.

See also: Bond, Investment, Standard and Poor's, Stock, Stock Market