Celebrating 100 Years of Mutual Funds (2024)

On March 21, 1924 – 100 years ago today – MFS created the first open-end mutual fund with redeemable shares, marking the inception of a revolutionary approach to collective investment that would democratize access to the stock markets for individual investors.

This transformative concept has since undergone a remarkable evolution, shaping the landscape of investment and offering a multitude of opportunities to investors across the globe.



In anticipation of this milestone, the FundGuard team has been thinking – as we are known to do – about the corresponding history of investment accounting technology. While the rise of supporting technology and eventual fund accounting software dates back only as far as the 1960s, it is still a storied history – with the first fund accounting software platforms of note entering the market in earnest around 1980 and ushering in a series of legacy solutions and subsequent workarounds that are now burdening an industry at the cusp of digital transformation.

But before we digress, let’s dive a bit deeper into the history of the mutual fund industry.

Can’t wait? Skip ahead to our video:

Sixty Years of Investment Fund Accounting and Technology

1924 – The Birth of a New Era in Investment

The story of open-end mutual funds began in 1924 with the establishment of the Massachusetts Investors Trust in Boston, which introduced the concept of pooling resources from multiple investors to purchase a diversified portfolio of securities, offering investors the flexibility to buy and sell shares at the net asset value (NAV) computed at the end of each trading day. This would enable individual investors to participate in the financial markets with an unparalleled level of diversification and professional management.

1930s to 1950s: Growth and Regulation

The early years of mutual funds were met with enthusiasm, but the stock market crash of 1929 and the ensuing Great Depression brought about a period of skepticism and regulatory scrutiny. The U.S. Securities and Exchange Commission (SEC) was established in 1934, and the Investment Company Act of 1940 set the regulatory framework for mutual funds, requiring standards for disclosure, corporate governance, and fiduciary responsibilities. These regulations initially laid the foundation for the growth and stability of mutual funds, setting the stage for their expansion in the decades to follow.

1960s to 1980s: The Boom of Mutual Funds

The post-World War II era witnessed a booming economy and a burgeoning middle class with disposable income to invest. Mutual funds capitalized on this trend, with the number of funds and assets under management growing exponentially. The 1970s introduced the concept of the money market fund, offering investors higher yields than traditional bank savings accounts, while the 1980s saw the rise of sector funds and international funds, providing investors with more specialized investment options.

1990s to 2000s: The Technological Revolution and Mutual Funds

The advent of the internet and advancements in financial technology in the late 1900s and early 2000s transformed the mutual fund industry. Online trading platforms made it easier for investors to buy and sell fund shares, while the proliferation of financial information on the internet empowered investors to make more informed decisions. The era also saw the rise of index funds and exchange-traded funds (ETFs), which continues today – offering low-cost, passive investment options that challenge traditional actively managed funds.

The Current Landscape and Future Prospects

Today, in spite of headline-making outflows to alternative and private asset classes, mutual funds continue to be a vital part of the global financial system, with trillions of dollars in assets under management worldwide. The industry faces new challenges and opportunities, from navigating low interest rate environments, to incorporating sustainable and responsible investing principles. Technological innovations such as AI-powered advisors and distributed ledger technology promise to further transform the way funds are managed and traded.

Looking ahead, the fundamental principles that led to the creation of the first open-end mutual fund—a desire for diversification, professional management, and accessibility—remain as relevant as ever. As these funds continue to evolve, the industry will undoubtedly find new ways to meet the changing needs and preferences of investors, ensuring that the legacy of that pioneering fund established a century ago continues to shape the future of investment.

60 Years of Technology – A Timeline

Now back to the equally storied but decades younger technology and investment accounting trajectory that rose – slowly but surely – to meet the moment.

1960s: The World Turns to Computing…

PDP-1, the first interactive mini computer also came to market, along with an abundance of other firsts —first use of robots, first supercomputer, earliest iteration of the Internet (ARPANET).

And while fund accounting systems remained manual, key advancements like dynamic random access memory (DRAM) in 1967 and COBOL programming language in 1959 and 1960 set the stage for later use of computers in accounting processes.

1970s: Modern Computing is on the Rise

With Intel’s launch of the world’s first dynamic RAM chip and first microprocessor for home computers, modern computing took off. Kenbak-1 – widely considered the world’s first personal computer was released in 1971, followed by C programming language, invented by Dennis M. Ritchie for use in operating systems and mini-computers in 1972.

Then of course came the Apple Computer Company, founded in 1976.

The 1970s also saw general accounting go digital. While not specialized for fund accounting, inventions like Visicalc, the first spreadsheet software, and Peachtree Software, the first accounting software package for personal computers helped pave the way.

1980s: Focus on Data

A new communications protocol was established called Transfer Control Protocol/Internetwork Protocol (TCP/IP) – enabling different computer networks to communicate with each other and giving life to the internet (see the 1990s).

Client-server architecture & relational databases also emerged in the 1980s, allowing for more distributed processing of data and applications and more efficient management of large volumes of banking data. Key milestones included: the release of C++ programming language in 1985, and Oracle (formerly Relational Software, Inc.) launched the first commercially available version of SQL.



(And then forty years later FundGuard’s Product Strategy Director, Peter Muldoon, wrote this article highlighting a few core functional weaknesses of SQL, which can be solved by NoSQL strengths today.)

In the 1980s, mainframes were used to process large volumes of transactions using code written in COBOL, and databases were either hierarchical or network. Also during this time, four new fund accounting software providers entered the market.*

1990s: Internet Enters the Mainstream and Relational Databases Advance

As the Internet became mainstream following its 1993 launch, online banking began to take off. Javascript was invented by Brendan Eich in 1995 and QuickBooks launched in 1998, though with the primary purpose of personal accounting.

The rise of the World Wide Web also led to more advanced relational databases being introduced, along with technologies like messaging middleware enabling different systems to communicate with each other. Messaging integration middleware products focused on providing reliable, scalable, and high-performing mechanisms for connecting systems and applications.

We saw another five new fund accounting software providers enter the market.*

Y2K – The ‘Aughts: A New Century Ushers in the Evolution of Software Development

The Manifesto for Agile Software Development was published in 2001, defining new ways to improve software development processes. Along with these insights, the early 2000s also saw the emergence of service-oriented architecture (SOA) as a model for developers to enable interoperability. Virtualization technologies also became more widespread, allowing for multiple apps and systems to run on one server, and blue-green deployment grew in popularity – leading to new software releases in zero downtime.

Within the financial services industry, service-oriented architecture and web services enabled banks to integrate systems and data with other systems and data sources, forming the very early days of open banking technology. Disaster recovery and business continuity of course became more vital in the wake of the 9/11 attacks and natural disasters.

Fund accounting innovation, on the other hand, began to slow, with only one new fund accounting software provider launching to the market.* This is likely because the “Aughts” saw a shift in fund accounting from innovation to fine-tuning development processes and legacy systems.

2010s: The Early Union of Finance and Technology

The 2010s necessitated technology within the financial sector with the rising popularity of cloud computing and increased conversations around open banking. Big data technologies (like Hadoop) and NoSQL databases (like Cassandra) were introduced for storage and analysis of vast amounts of data in real-time.

We also saw messaging systems like Kafka grow in popularity for their real-time data processing capabilities and streaming analytics. The growing sophistication of business continuity gave rise to technologies like active-active and passive-active architectures, and cloud computing provided the ability to store data and run applications on remote servers.

And yet, the tech gap continued to widen in fund accounting. Despite growing adoption of technology in finance, fund accounting technology struggled to keep up. Across the entire decade, not a single new fund accounting software provider* launched to the market – excluding in-house builds, bespoke “single use” asset-class systems or fund accounting data aggregators.

Until 2018. That is when FundGuard came out of stealth with the industry’s first fully cloud-native, AI-powered. low-touch Contingent NAV solution, creating an entirely new set of possibilities for investment accounting software.

2020s: The New Era of Investment Accounting

The global lockdown caused by COVID-19 at the start of this century has led to rapid adoption of technologies enabling remote work and digitally-based services.

With cybersecurity security ever on the rise, privacy concerns remain top priorities, with key technologies like hom*omorphic encryption and differential privacy emerging.

Kubernetes and containerization technologies have become more popular, allowing for easier deployment and management of applications across different cloud environments. And the trend towards cloud computing and big data continues, with the asset management industry finally moving full steam ahead to adopt these technologies, as well as AI and machine learning to automate processes and provide more dynamic insights into user and investor behavior.

And with this industry transformation, FundGuard – in partnership with leading financial institutions – has evolved to become the only, fully cloud-native, multi-asset, multi-book investment accounting platform (ABOR, IBOR, CBOR, etc.).

Join the Transformation

FundGuard is transforming back-, middle- and front-office investment operations with our cloud-native, ai-powered, cross-asset, multi-book investment accounting solution – creating unparalleled scalability, cost efficiency and transparency for asset managers and their service providers.

Get in touch to request a demo and learn more.

*In citing the number of fund accounting platforms per century, we chose to consider only those legacy platforms that a) Are still around today b) Were not originally built by fund admins or asset managers as in-house platforms, c) Are not single-use bespoke asset class specialty platforms and d) Have actual accounting engines vs. just aggregators of accounting data.

VIDEO TIMELINE: Sixty Years of Investment Fund Accounting and Technology

Celebrating 100 Years of Mutual Funds (2024)

FAQs

How to sell mutual funds interview questions? ›

Mutual Funds
  1. Explain what do you mean by private equity transactions? ...
  2. Explain what is equity funding? ...
  3. Explain what is weighted average rating factor? ...
  4. Explain what is call option? ...
  5. Explain what is Option trading? ...
  6. Explain how options are different than equities?

How do you calculate appreciation in mutual funds? ›

Future Value (FV) = Present Value (1 + r/100)^n
  1. Present Value (PV) = Rs 1,00,000.
  2. r = Estimated rate of return of 8% = 8/100 = 0.08.
  3. n = Duration of the investment which is 10 years.

What is the oldest mutual fund in the US? ›

Key Takeaways

The oldest mutual fund still in existence is MFS' Massachusetts Investors Trust (MITTX), also established in 1924. The exchange-traded fund, a modern variation, has taken the market by storm since the Great Recession of 2007–2009.

What is mutual fund appreciation? ›

Capital appreciation in equity shares or mutual funds occurs due to the financial performance of the company or enterprise, overall sectoral performance, and demand and supply of the security in the securities market. In the case of debt securities, the price also depends on the interest rate regime.

Are mutual funds hard to sell? ›

When an investor sells mutual fund shares, the redemption process is straightforward, but there might be unexpected charges or fees. Class A shares usually have front-end sales loads, which are fees charged when the investment is made, but Class B shares may impose a charge when shares are sold.

What is the best way to sell mutual funds? ›

Selling mutual fund shares

Mutual fund shares are sold the same way that they're bought: either through the fund company directly or through your broker. You'll receive the next available net asset value as your price for each share sold.

How much to invest to get $50,000 per month? ›

Assuming the average annual dividend yield to be 7%*, you would need to invest INR 85,00,000 to get approximately INR 50,000 per month. *The average dividend rate is calculated from the top 15 dividend-yielding stocks.

How much will I get if I invest $50,000 in mutual funds? ›

Considering 8% returns, an investment of Rs 50,000 can fetch you Rs 2,33,051 in 20 years. Not suitable for long-term wealth creation or investors with a high-risk appetite.

What is the average mutual fund return over 20 years? ›

What Is the Average Mutual Fund Return Over the Last 20 Years? High-performing large-company stock mutual funds have produced returns of up to 12.86% in the last 20 years. Comparatively, the S&P 500 has produced returns of 8.13% since 2002.

What age group owns the most mutual funds? ›

In 2022, it was observed that 55 percent of the households whose head was in the 42-57 age range owned shared in a mutual fund in the United States. However, only 36 percent of households where the head was aged between 18 and 25 owned shares in a mutual fund.

Who is the largest mutual fund company in the United States? ›

Vanguard

How many mutual funds should I have? ›

While there is no precise answer for the number of funds one should hold in a portfolio, 8 funds (+/-2) across asset classes may be considered optimal depending on the financial objectives and goals of the investor. Further, higher allocation of portfolio to the right fund is of crucial importance.

How do I avoid paying taxes on mutual funds? ›

The simplest way to avoid this is to own mutual funds in tax-advantaged retirement accounts such as IRAs and 401(k)s. You can also make sure to hold the investments for the long term, so that if you do owe taxes, you'll pay them at the lower long-term capital gains rate.

Is there a penalty for withdrawing from a mutual fund? ›

You generally can withdraw money from a mutual fund at any time without penalty. 7 However, if the mutual fund is held in a tax-advantaged account like an IRA, you may face early withdrawal penalties, depending on the type of account and your age at the time.

Should I sell off my mutual funds? ›

However, if you have noticed significantly poor performance over the last two or more years, it may be time to cut your losses and move on. To help your decision, compare the fund's performance to a suitable benchmark or to similar funds. Exceptionally poor comparative performance should be a signal to sell the fund.

How to sell mutual fund to client? ›

The best way to sell mutual funds is to understand your client's needs and goals. Provide them with clear information on the benefits and potential for growth.

How do you short sell a mutual fund? ›

Shares in a mutual fund are bought or sold by the financial company that manages it. For that reason, there's no way to short-sell a mutual fund.

How will you sell your product interview questions? ›

How to answer "Sell me this pen"?
  • Ask questions to understand your customer. ...
  • Know how to create demand. ...
  • Talk about customer satisfaction. ...
  • Create a positive impression of your product. ...
  • Focus on long-term relations. ...
  • Know what you are selling. ...
  • Value-added selling approach. ...
  • Solution-based approach.
May 14, 2024

How do mutual fund sales work? ›

Unlike stocks and ETFs, mutual funds trade only once per day, after the markets close at 4 p.m. ET. If you enter a trade to buy or sell shares of a mutual fund, your trade will be executed at the next available net asset value, which is calculated after the market closes and typically posted by 6 p.m. ET.

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