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Mutual Funds, Why Not?*

Couronne

Among the various forms of investing and methods of capital management, mutual funds (investment trusts and unit) occupy a very special position, due to their extraordinary development in recent years, as much in the United States as in European countries, and especially in Switzerland.

In his book, Dr. Servien, who comes from a line of bankers and financiers, and who some years ago wrote a noteworthy legal and taxation study on the same subject, points out the role that mutual funds (investment trusts) play - or might play - within the framework of today's economy.

According to this Swiss author, the idea of investing capital collectively meets with many of the needs of today, as well as with the need for financial security that investors have a right to demand. More and more, states Dr. Servien, people prefer to entrust to specialists the functions they are less equipped to undertake themselves. Moreover, everyone is trying to reduce to a minimum - even to eliminate, if possible - the risks involved in all investment activities.

The reasons for the tremendous success of mutual funds are thus to be found in the peculiar solutions that this comparatively new form of investment offers the small investor - particularly with regard to the main difficulties that he encounters in the confusing mazes of the world of finance in which he finds himself when trying to protect his working capital. Nowadays, indeed, the resources and ability of a single individual, working alone, seldom permit him to undertake profitable and, at the same time, safe ventures. The collective placing of capital and the "central" managing of it - on a more or less large scale - thus becomes one of the only alternatives. Mutual funds, therefore, seem to be the answer: several people and concerns unite in order to spread their risks, and entrust the administration of part, or all, of their available capital to third parties more competent and better situated than themselves to handle it.

    In the first part of his study, Dr. Servien paints a picture of the evolution of these investing organisations in various countries - England, the United States, Germany, Belgium, France, Holland, Luxembourg, Japan, Argentina, Mexico and Switzerland - during the past two decades. He also shows in detail - and supports what he has to say with many examples - the enormous advantages that the small investor can derive from such a type of investment; and he does this with a thoroughness which is convincing and reassuring, not to say expert.

Then, he analyses in detail the influence of mutual funds on the world's Stock Exchanges and on the companies in which the trusts hold shares. But he shows that, contrary to general belief, this influence is much smaller than it appears at first sight. In fact, mutual funds, he laments, are used to finance but an almost negligible part of the world's business.

From these premises, the author goes on to present a summary of American, English and Swiss activities, and concludes that the further expansion of such organisations is a necessity in our modern-day economy. ln fact, they could contribute greatly to the world of savings and also be an important factor in their protection, at the same time permitting thousands of small investors to take part in the stock and real-estate markets.

The principal merit of investment trusts, according to the author, is that they solve, in a simple, convenient and inexpensive manner, the many problems facing investors if they do not wish to invest exclusively in bonds or place their funds in common securities or real-estate, neither of which are ideal solutions for a variety of reasons - not the least being the increased risk.

Finally, the investment trust certificate (or mutual fund share) constitutes a very favourable investment, since it combines the advantages of bonds (in respect of the certainty of dividends) with the attractiveness of securities (in respect of the possibilities of capital appreciation).

Mutual Funds: Why Not? makes as profitable reading for the specialist as for the layman, since discussion and appreciation of investment policies for the small investor alternate with detailed analysis of great help to the professional administrator and to the economist. Furthermore, it is the first book of the kind that we know of that approaches so expertly and thoroughly the various problems associated with European as well as American companies devoted to mutual forms of investing.

The Editors

* French, German, Italian and Spanish versions of this book have also been published under different titles.