How to Open Mutual Funds

A mutual fund is a portfolio of stocks, bonds or other types of assets that individuals or organizations can invest in, according to the U.S. Securities and Exchange Commission (SEC). Individuals often buy mutual funds as long-term vehicles to fund retirement. In the nearer term, people use mutual funds to help reach other goals, such as financing a college education or home purchase. In any case, logistics and strategy come into play when looking to open a mutual fund account.

Spend time picking the right mutual fund. There is no exact science to the process, as the Motley Fool notes, so you'll have to consider you tolerance for risk, time horizon and other factors. Mutual fund options are wide-ranging. You can invest in funds that track the performance of major stock market indexes, such as the Dow Jones Industrial Average; funds that focus on a particular set of investments, such as stocks of large companies, mid-size firms or small companies; securities that focus on a particular part of the world or business sector; or bonds funds that specialize in everything from Treasury bonds to junk bonds. You might want to commission the help of a financial advisor to help you decide.

Pay attention to a mutual fund's fee structure. Look for no-load funds that do not charge a fee when you buy or sell shares. As the SEC notes, some funds charge a redemption fee of up to 2 percent when you redeem shares. Every fund incurs expenses that they pass on to investors. The Motley Fool website advises that some funds that are laggards charge relatively hefty fees of around 1.5 percent, while some of the biggest winners levy fees of less than 1 percent.

Consider start-up costs. Some funds require high initial minimum investments, often in the thousands of dollars. Other have no minimum or comparatively low minimums, such as $250 or $500. A significant number of funds waive minimums if you commit to an automatic monthly investment plan, meaning you'll periodically transfer money from your checking or savings account to your mutual fund account.

Contact mutual fund companies that offer funds you have an interest in. You can call companies directly, visit their website or get information from third-party sites. For example, while you may be interested in a fund offered by one company, you can still get information on it and often purchase shares in it from other mutual fund companies, banks or brokerages. Regardless of the avenue you take, the fund must provide you access to its prospectus, which contains information on the fund's strategy, fees, past performance, holdings and other data to help you make an informed decision about investing.

Complete an application to open an account. With most companies, you can undertake the entire process online. You can also fill out an application and send it in via snail mail. Select the type of account you want to open. The most common selections are a regular investment account or a traditional or Roth IRA. Choose between opening a individual or joint account. Provide basic contact information, your Social Security number and a method for funding the account, typically an electronic transfer from your existing checking or saving account.

Purchase shares in the mutual fund. Generally, you designate a lump sum that you would like to invest initially. You have the option, unless you committed to a plan in return for no or a lower minimum investment, of setting up automatic future investments or simply depositing more money into your mutual fund account if and when you choose to do so.

Alternatively, you can open a brokerage account with a bank or brokerage house, fund that account and purchase shares of the mutual fund you would like to get into. This latter option is akin to buying shares of a stock.

Video of the Day

Brought to you by Sapling
Brought to you by Sapling

About the Author

As a writer since 2002, Rocco Pendola has published numerous academic and popular articles in addition to working as a freelance grant writer and researcher. His work has appeared on SFGate and Planetizen and in the journals "Environment & Behavior" and "Health and Place." Pendola has a Bachelor of Arts in urban studies from San Francisco State University.