The patience of American retail investors, who were stuck with equities through 2000 and 2001, finally shattered last year. They redeemed a net $27.1 bn from equity mutual funds in 2002.

Internationally, mutual funds are the key contributors to globalization of financial markets and one of the main sources of capital flows into emerging economies. Since the mid-1980s, mutual funds have experienced the highest augmentation rate of all major financial intermediaries in the US. Part of the mutual fund industry's past success has been its ability to present investors with many straightforward benefits of having their money managed on a pooled basis by fund managers. These benefits included diversification, professional management, economies of scale, low initial minimum investments and the `redeemability' of fund shares. Though mutual funds existed in the US since 1924, until the mid-1980s the funds flow was not significant. A decline in deposit rates in the early 1990s marked the beginning of explosive growth in the funds. As a result, mutual funds as a group have become important financial intermediaries and repositories of household wealth. The US mutual fund industry has become a giant, from its 1949 base of $2 bn, fund assets soared to $6.5 tn at the outset of 2003, a compounded growth rate of 16%. So has the number of funds multiplied, from 137 mutual funds to 8,300. Mutual funds have been Americans' favorite investment vehicle, and mutual fund companies did very well out of the boom.

The year 2003 began with great uncertaintythere was apprehension over the impact of war with Iraq and heightened fears sparked by renewed terrorist threats. Of course, there are many dark clouds hanging over the US economy right now. There is uncertainty due to the prolonged Iraq situation that is affecting corporate expenditures and lowering consumer expectations. Prolonged war, however, can have a negative impact by means of erosion of consumer and business spending, increased inflation and government deficits, and a decline in economic output.

Financial Markets ,US, Mutual Funds,redemptions,equity mutual funds, financial intermediaries, redeemability, business spending, increased inflation, government deficits, economic output, consumer expectations, terrorist threats, corporate expenditures, heightened fears, minimum investments, diversification, professional management, economies of scale.