When did mutual funds start
The history of mutual funds
Details on the first fund and the history of mutual funds
Many investors and savers have been using the opportunity to generate income by investing in funds for years. This can be done, for example, as part of a fund savings plan or by “buying individually” shares. For many investors, mutual funds have become a completely normal investment. But since when have there actually been investment funds, what was the original idea of this type of investment and what has been the development over the past few decades?
Anyone looking for the origins of investment funds will often come across the 1830s. In fact, the first investment fund already existed in the 18th century, more precisely in 1774. This fund at that time already took up numerous principles that still apply to the more than 7,000 approved modern investment funds in Germany alone. Until recently, it was believed that the first mutual fund existed in 1836 and that it was issued by the West Cornwall Mines Investment Company. In the meantime, however, the experts are of the opinion that the first investment fund was launched in 1774. The founder of the first investment fund (as we understand it today) was the Dutchman Abraham van Ketwich.
The "Eendracht Maakt Magt" as the first investment fund
Abraham van Ketwich named his fund “Eendracht Maakt Magt”, which translates into German as “unity makes you strong”. At that time, 2,000 fund shares were issued and even then the exact rights of investors (shareholders) were defined in the fund's prospectus. To this day, the prospectus has held up in practice, because every fund has to issue a fund prospectus. Risk diversification was already well known at the time, because the capital obtained by issuing fund shares should be diversified as widely as possible, at least in 2,000 different stocks, worldwide.
In addition, the investment guidelines of this first fund stipulated precisely which regions could be invested in, namely mainly in Europe, the Dutch colonies and in Central and South America. However, investments were not made in stocks, but rather in bonds, i.e. bonds. From today's perspective, the fees were incredibly low at the time. The subscription fee was only 0.5 percent and the management fee was only 0.2 percent per year. The calculated return of around four percent was also continuously achieved.
The second fund followed just two years later
Due to the great success of the first fund, the next fund was launched just two years later. Again the issuer came from the Netherlands, because the bankers were from Utrecht. The fund from 1776 was called “Voordelig en Vorsigtig”, which translated into German means “advantageous and careful”. Incidentally, the manager of this second fund in history was again Mr van Ketwich. The minimum investment at that time was 525 guilders, which would be around 10,000 euros today. With this fund, too, the focus was on risk diversification and with a return of 6.3 percent the fund was even more successful than its predecessor. Even if the fund was originally designed for a term of 25 years, it existed until 1893, i.e. exactly 114 years. These numbers and structures of the first funds in history clearly show how much they had in common with the funds currently in use.
The history of investment funds in Germany
After the first fund from 1774, it took many decades before the first investment fund was launched in Germany. In any case, it is known which was the first equity fund in Germany. It is questionable whether there have been other funds before that have invested in bonds, for example, as numerous documents were leaked in the course of World War II that would have proven the existence of a German investment fund. Therefore, we would like to turn to the first equity fund in Germany, because its foundation and existence can be proven beyond doubt. This fund is called “Fondak”, the name of which is a mixture of “funds” and “shares”. The Fondak Aktienfonds was founded at the end of October 1950. The fund still exists today, and the investment focus is on the DAX and MDax stocks. Since it was founded, the Fondak Fund has grown in value by an almost unimaginable 43,000 percent. So whoever invested the equivalent of 500 euros back then (1950), for example, has assets of around 215,000 euros today.
On the basis of this history of investment funds, which dates back to the 18th century, many different types of funds have developed up to the present day. On the one hand, there have been various closed funds for decades (what are closed funds?) And an even greater variety of open funds. From a global perspective, there are now well over 10,000 different funds. And even if the funds still have a lot in common with the first funds in terms of structure, a further development can still be seen. Exchange Traded Funds (ETFs) or Riester funds are just two examples of how fund investments gradually change a little.
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