And in 1940, Congress passed the Investment Company and Advisor Act, which regulated aspects of companies that invest at least 40% of their assets in securities. However mutual funds relating to the United States can be traced back to the Reconstruction era following the Civil War. The Reconstruction was financed in part by money invested in Scottish and English investment trusts. These trusts financed farm mortgages, railroads, and other industries. As the Industrial Revolution built, the investment bankers in Boston, New York, and Philadelphia catered primarily to the wealthy. These bankers were not meeting the needs of the new breed of investor that this revolution was creating, namely the average consumer. In the roaring 20's, the first open-end mutual fund was created, allowing investors the ability to sell their shares back to the fund at any time, for a set price. The minimum investment was just over $260, not in the range of every household, but about equal to the price of a new Ford Model T. .
The idea grew rapidly in popularity. Not to pin Black Tuesday on mutual funds, but in a six month span in 1927, the number and value of closed end trusts doubled to nearly 100 trusts with assets around $750 thousand. As the investment frenzy quickened, there was nearly $3 billion in closed end trust assets by 1929. These funds carried 10% commissions and 12.5% expense ratios, with most funds keeping a tight lid on its holdings (even from shareholders). Today the average expense ratio is around 1.5%, and commissions generally do not exist, the equivalent fees are part of the expense ratio. There are some funds, which charge a load commission, either as you purchase or sell your shares. However rarely does the load commission rise over 3%. Only around 1% of today's funds have expense ratios of grater than 10%, while nearly 5% have expense ratios of less than 0.5%.
As with the stock market, these early funds lost most of their value on Black Tuesday and during the ensuing years.
