The 1980s and 1990s saw spectacular growth in the popularity of the stock market as an investment alternative for individuals, and similar growth in mutual funds as one of the primary ways that individuals entered the stock market. Once considered investment vehicles for only the most knowledgeable (and wealthy) individuals, mutual funds now target individuals of even modest means in order to attract consumers to a particular fund. The growth of mutual fund popularity has also led to specialty funds so that investors can choose from funds featuring a wide variety of risk--and reward. This research examines the history of mutual funds, the types that are now available, possible reasons for the explosive growth in this industry, how this growth has affected competition in the industry, and what the outlook is for mutual funds in the future.
Although today's mutual funds can sound complicated with technical jargon such as "no-load" and "open-end," mutual funds are simply a group of individuals putting their money together in order to have a greater amount to invest in various stocks or bonds (typically) or other investment instruments. Each investor owns shares in the fund; the fund, in turn, holds shares in individual stocks, or purchases bonds, or holds mortgages, or operates in whatever investment vehicles the owners decide on. Most mutual funds today are so large that they are managed by professional fund managers, and individual investors typically have little or no say over the exact stocks which are purchased, or which investment vehicles are used. Instead, investors purchase shares in a particular fund based on the overall strategy of that fund, whether the strategy is growth stocks, corporate bonds, government bonds and so on. A notable exception to this is the proliferation of investment clubs, which are essentially "micro-managed" mutual funds. These funds make investment decisions based on the input of each member, ...