GENERAL SURVEY

Open-end investment companies are now generally known as mutual funds, the terms being used interchangeably. Un doubtedly, the word mutual has sales value, for it is associated with savings banks and certain life insurance companies. In a number of ways, open-end companies are no more mutual than the ordinary commercial bank or industrial enterprise. This does not detract from their merits, but uninformed investors may misunderstand the implications of the word.

David Schenker, who testified at the Congressional hear ings on the Investment Company Act and was counsel to the Securities and Exchange Commission in the preparation of its report on investment trusts and investment companies, stated the theory out of which the acceptance of the term undoubtedly arose: “Our concept of an investment company is that it is a mutual enterprise. The stockholders being on a parity, there ought not to be any conflict between the security holders of that type of institution. This ought to be a mutual enterprise, with one class, simple structure, no different than a bank, no different than an insurance company, no different than any other type of financial institution. They are all partners in a common venture. They all stand to gain or lose. There is no overreaching. There is no necessity for protection in situations where the common stock is under water and the funds really belong to the common stockholders.” (Investment Trusts and Investment Companies, Hearings on S. 3580, Senate Committee on Banking and Currency, 76th Cong., 3d sess., 1940, Part I, p. 270.) Certified Financial Planner - Read More.