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How Do You Buy Mutual Funds

Pretty much every long term investor invests in mutual funds. However, it can be pretty challenging to get started because there are over 4,000 choices of mutual funds, and every fund is slightly different – even funds that invest in just a standard index are different. So, here is a quick guide on how to buy mutual funds, and what to look for when making the decision. 


What Kind of Mutual Fund to Buy

The first thing to consider when looking how to buy mutual funds is to think about what type of fund you want to invest in. Remember, a mutual fund is a company that pools money from many investors to purchase securities. Those securities classify the fund: for example, if the fund invests in the S&P 500, it is said to be an index fund; if it invests only in small cap companies, it is said to be a small cap fun.
If you are just getting started, it is probably a good idea to just stick with index funds. However, if you’re trying to build a diversified portfolio, you may want to look at different types of funds.

What to Know About Fees

It is important to remember that all mutual funds charge fees. So when looking to buy mutual funds, this is an important factor to consider. The main fees to look out for are:
  • Loads (or sales charges) – A percentage you pay your broker
  • Purchase Fees – A fee you pay the fund to buy in
  • Redemption Fees – A fee you pay the fund to cash out
  • Exchange Fees – A type of transfer fee
  • Account Fees – An account maintenance fee
  • Management Fees – The management’s cut
Almost all of the first 5 charges can be avoided by looking for no-load funds or no cost funds. However, every mutual fund will have management fees and other expenses. Your goal when looking at mutual funds should be to find the fund with the lowest expense ratio. 

How to Make the Trade

When you are finally ready to trade, you can invest either through your brokerage or directly with the mutual fund. Some brokerages offer no load and no fee funds, which can make going through a broker more advantageous.
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