When you are ready to invest in a mutual fund, you can either work through a broker or, in many cases, you can buy directly from the mutual fund company. Many funds offer a toll-free number for placing orders, and you can buy shares of their funds.
Unlike stocks, you don’t have to specify the number of shares you want to buy. You tell the fund company or broker that you want to invest a stated amount, and the fund or broker tells you how many shares you will get. Unlike stocks, mutual funds sell partial or fractional shares.
A mutual fund company can’t sell you shares of a fund unless you have first received the prospectus for that fund. Whether you call or request the prospectus on the Web, you have to give your name and address. Fund managers need this data to prove that they have fulfilled their obligation to supply you with a prospectus.
When you begin to look into mutual funds, pay close attention to those that come in families — preferably big families. The term family refers to companies that offer several different kinds of funds. How big is big? Think in terms of ten or more funds. You can spot these families easily by looking at the mutual fund reports in the business section of your daily paper. You typically see some kind of headline in the columns followed by a list of funds offered by a particular firm. It’s easy to spot the big families at a glance; these include Fidelity, Oppenheimer, T. Rowe Price, and Vanguard. Families of funds that charge commissions (also called loads or load charges) provide the opportunity to switch among their funds without paying additional commissions. You can save considerable money with this option over the long term. Make sure to check out this possibility.
A mutual fund has professional management, which comes at a price. You, the investor, pay for this management, either through commissions you pay when you buy or when you sell and other fees that you are billed for periodically. These fees reduce your return on investment and can run as high as 7 to 8% a year, but 2% or lower is more common. No-load funds don’t charge sales loads. No-load funds are available in every major fund category.
Although not all mutual fund companies charge commission, you need to know that the term “ load” is often used in two ways. One is to specify commission charged when you buy a fund (referred to as front-end load), and the other refers to commission charged when you sell your shares in a fun (known as back-end load).
Many investors wonder why they should pay a commission to buy shares of a mutual fund when they can buy a similar fund without a commission. The answer is that, in most cases, there’s no good reason to buy a load fund rather than a no-load fund. Several studies have indicated that the performance of the two types of funds doesn’t differ. Unless you come across that rare case in which the performance of a load fund is so superior that it compensates for the load, save your money and buy no-load funds.
Almost all mutual funds charge some kind of annual fee. Analysts tally all these up into one measure called the expense ratio, expressed as a percentage of the invested funds. Expense ratios range from about 0.75% to 2%, but a few charge as much as 7%. The fund’s prospectus discloses the current schedule of fees.
Beware of any load fund with a high expense ratio. Avoid funds that charge a back-end load. These high fees and loads are a large drain on an investment’s overall return; few funds deliver performance consistently high enough to offset high expenses.
Unlike stocks, you don’t have to specify the number of shares you want to buy. You tell the fund company or broker that you want to invest a stated amount, and the fund or broker tells you how many shares you will get. Unlike stocks, mutual funds sell partial or fractional shares.
A mutual fund company can’t sell you shares of a fund unless you have first received the prospectus for that fund. Whether you call or request the prospectus on the Web, you have to give your name and address. Fund managers need this data to prove that they have fulfilled their obligation to supply you with a prospectus.
When you begin to look into mutual funds, pay close attention to those that come in families — preferably big families. The term family refers to companies that offer several different kinds of funds. How big is big? Think in terms of ten or more funds. You can spot these families easily by looking at the mutual fund reports in the business section of your daily paper. You typically see some kind of headline in the columns followed by a list of funds offered by a particular firm. It’s easy to spot the big families at a glance; these include Fidelity, Oppenheimer, T. Rowe Price, and Vanguard. Families of funds that charge commissions (also called loads or load charges) provide the opportunity to switch among their funds without paying additional commissions. You can save considerable money with this option over the long term. Make sure to check out this possibility.
A mutual fund has professional management, which comes at a price. You, the investor, pay for this management, either through commissions you pay when you buy or when you sell and other fees that you are billed for periodically. These fees reduce your return on investment and can run as high as 7 to 8% a year, but 2% or lower is more common. No-load funds don’t charge sales loads. No-load funds are available in every major fund category.
Although not all mutual fund companies charge commission, you need to know that the term “ load” is often used in two ways. One is to specify commission charged when you buy a fund (referred to as front-end load), and the other refers to commission charged when you sell your shares in a fun (known as back-end load).
Many investors wonder why they should pay a commission to buy shares of a mutual fund when they can buy a similar fund without a commission. The answer is that, in most cases, there’s no good reason to buy a load fund rather than a no-load fund. Several studies have indicated that the performance of the two types of funds doesn’t differ. Unless you come across that rare case in which the performance of a load fund is so superior that it compensates for the load, save your money and buy no-load funds.
Almost all mutual funds charge some kind of annual fee. Analysts tally all these up into one measure called the expense ratio, expressed as a percentage of the invested funds. Expense ratios range from about 0.75% to 2%, but a few charge as much as 7%. The fund’s prospectus discloses the current schedule of fees.
Beware of any load fund with a high expense ratio. Avoid funds that charge a back-end load. These high fees and loads are a large drain on an investment’s overall return; few funds deliver performance consistently high enough to offset high expenses.
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