The American mutual fund industry and its regulations were shaped by market and political forces between 1936 and 1942. The regulations that distinguish modern mutual funds from hedge funds were actually pushed for by the industry itself to maintain a brand for passive, low-risk investing. This led to restrictions on borrowing, redemption rights, and control over portfolio companies. The industry's early focus on passive investing influenced the current regulatory regime. Additionally, modern mutual fund taxation, which distributes income to shareholders, may have originated from a strategy to compete with closed-end mutual funds.