A century of savings and mutual funds

The idea of saving more spread through the world thanks to two major milestones in 1924: the first open-ended mutual fund and World Savings Day

- AMOL AGRAWAL

IT IS THAT time of the year when people make their New Year's resolutions. One resolution which usually tops is "I will save more". It is interesting how this idea of saving more spread through the world thanks to two major milestones 100 years ago: the first open-ended mutual fund and World Savings Day.

The roaring 1920s led to a booming US economy and stock markets. There were concerns that American families will be drawn into feverish speculation, invest in risky securities, and lose their savings. There was a need for an investment scheme that could pool savings of households and put money in safer securities. The US had a few closed-ended funds where money could be withdrawn only after completion of the fund's tenure.

Edward Leffler, a securities salesperson, came up with the idea of an open fund where investors could freely withdraw funds. The specialist fund manager would pick stocks and report the net asset value transparently. In March 1924, he, along with a small brokerage firm, launched the Massachusetts Investors Trust which continues till date. The rest, as they say, is history. Mutual funds as an idea was adapted across the world to channel household savings towards financial markets.