Mutual Funds

A mutual fund is operated by an investment firm that raises money from shareholders and then invests in a group of assets (equities or fixed income). The mutual fund portfolio manager invests in accordance with a stated set of objectives (guidelines). The mutual fund company raises money by selling shares of the fund to the public (usually there are very few stipulations on who can invest in the fund). Mutual fund managers then take the money they receive from the sale of the shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds, and money market instruments. Shareholders are free to sell their shares at any time. They can also exchange their ownership interest for shares in another fund sponsored by the same fund distributor. Mutual funds try to match or exceed an investment benchmark—the Standard & Poor’s 500 or Dow Jones Industrial Average, for example.

Mutual funds have grown increasingly popular in the last 30 or so years because funds are diversified (which reduces risk), affordable (investors can participate in funds with as little as $2,000 and invest as little as $50 a month), and liquid (they can be redeemed any day the financial markets are open), among other benefits. Approximately 53.6 million U.S. households owned mutual funds in 2015, up from 28.4 million households in 1995 and 12.8 million households in 1985.

The first mutual fund was started in 1774 in Holland by a Dutch merchant and broker named Adriaan van Ketwich, according to K. Geert Rouwenhorst in the Origins of Mutual Funds. A type of mutual fund was introduced in the United States in the late 1800s, but mutual funds did not become popular until the 1920s, when the first mutual, or “open ended” fund was launched. Mutual funds grew increasingly popular in the early 1950s, and the total number of funds surpassed 100. By 1990, mutual funds had become very popular investment options, with shareholder assets topping $1 trillion. The number of mutual funds worldwide grew from 6,778 in 1997 to 9,520 in 2015. The Investment Company Institute (ICI) reports that, in 2015, mutual fund companies managed $18.1 trillion in assets (including those of exchange-traded funds) for more than 93.1 million U.S. investors. The United States has the world’s largest mutual fund market, with 48 percent of total net world assets. Worldwide regulated open-end mutual fund assets were $37.2 trillion at the end of 2015, according to the ICI. The 10 largest firms managed 56 percent of mutual fund and exchange-traded fund assets in 2015.

There are many rewarding career paths for those interested in the mutual fund industry. Job opportunities range from financial analysts and research associates, to portfolio managers and fund accountants, to lawyers and risk managers. Entry-level positions require at least a bachelor’s degree in finance, accounting, business management, or a related field. Some firms prefer those with MBAs or graduate degrees in finance, financial engineering, accounting, or law.

Mutual fund companies are located throughout the United States, but in 2015, 24 percent of fund industry workers were employed in Massachusetts and New York. Fund companies in California, Pennsylvania, and Texas employed 25 percent of fund industry workers. 

Diversity remains a problem in the industry. In 2015, only 9.4 percent of fund managers were women, according to Morningstar, Inc., which provides stock market and final industry analysis and data. These female fund managers exclusively managed about 2 percent of the industry’s assets and open-ended funds

The ICI reports that 174,000 people worked for U.S. investment companies (mutual funds, closed-end funds, exchange-traded funds, and unit investment trusts) in 2015. Fund industry employment grew 53 percent from 1997 to 2015. Job opportunities for those who work in the mutual fund industry are expected to be good during the next decade. Employment for financial analysts (including portfolio managers and fund managers) who work for securities, commodities, and other financial investment and related firms is expected to grow much faster than the average for all careers from 2014 to 2024, according to the U.S. Department of Labor.

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