- Mutual funds are investment companies that hold pools of securities. Investors in mutual funds own shares of the pool, and the fund's share value changes as the fund's investments change in value. Mutual fund investors can also earn dividends. It is easy to invest in mutual funds, and they can be purchased directly from a fund company or through stock and investment brokers.
- Before you purchase shares of any mutual fund, the fund or selling broker is required to provide a copy of the fund's prospectus. This booklet or document spells out the fund's investment objectives, risks, historic returns, fees and financial highlights. A prospectus can look complicated, but an investor should read through it before investing in a fund.
- Each mutual fund has a minimum initial investment amount and also minimum amounts for additional deposits. The minimum initial investment can range from $500 to $500,000, depending on the fund. Most funds have minimum starting amounts from $1,000 to $2,500. You can also make occasional or periodic additional investments in the fund account. This amount is usually $100 or $250. Some funds will let you add as little as $50 if you set up automatic investments from a checking account.
- Mutual funds sold through brokers often have commission charges or "loads." Many load funds have commission rates that decrease for larger investment amounts such as $100,000, $250,000 or $1 million. In fact, with most load funds, a million-dollar investment will not have any sales load. Selling brokers are required by law to notify investors of the breakpoints, or investment amounts where the commission rate decreases.
- When you buy shares of a mutual fund, the purchase price will be determined at the end of the trading day when the purchase order is placed. Mutual fund share prices are calculated only once each day after the market closes, so it is impossible to know in advance the exact price of any purchase.
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