How to Invest in a Mutual Fund

Mutual funds are an excellent way to earn money for the future. They're a pooling of the money of many investors, which allows the mutual fund portfolio manager to have a lot of money to spread across many investments, diversifying and reducing risk. Learning about how to open one can be a bit daunting, but it's really not that hard. All you need is a little time and research.

Step 1

Decide on the financial goals you have for the mutual fund. There are generally three types of mutual fund styles: growth, income with capital preservation, or growth with income. Growth is mostly equity investments or stocks and is the most risky. Income with capital preservation is mostly bonds or short-term debt instruments and is the least risky. Growth with income is a blend of the other two investment styles and has moderate risk.

Step 2

Find a mutual fund that meets your investment goals by either using a financial advisor or going to the fund company directly. If you use a financial advisor, he or she will do the research for you. Commissions are already worked into the mutual fund price, so there should not be any additional cost to you. If you choose to go through a mutual fund company, use a site like Yahoo! Finance or MSN Money to search for a mutual fund company with a high rating (Morning Star/S & P 4 or 5 star).

Step 3

Fill out the paperwork. If you decided to go through a financial advisor, the account paperwork will be processed through the financial advisor. If you go directly to the mutual fund, either call the mutual fund and have them send you an account application, or go to the mutual fund's website and download the application. Then you fill it out and send it to the mutual fund's office.

Step 4

Fund the account. The company will tell you what the minimum is. If you choose, you can also fund it after you get a confirmation letter back instead.

Step 5

Once your account is open, you will receive an account number and a confirmation of the data that you provided on the account paperwork. Save this information in a safe place. Also make sure all the data is correct. If the information has changed or is incorrect, contact your financial advisor or the mutual fund company for a correction.

Step 6

Wait for your statement. When you fund the account, you will receive statements. If there's activity in your account (switching funds in the same family, a dividend is paid, or you put money in or take it out) you'll get a monthly statement. If there's no activity, you'll get a statement every quarter. The statement shows the fund name, number of shares, and the description and value on the date of the statement. Check your statements to ensure that no irregular activity has taken place. If something doesn't make sense, call your financial advisor or mutual fund company and have them explain the situation.

Tip

Most fund companies will allow you to open an account below the minimum investment amount as long as you set up a periodic contribution (like $50 or $100 a month).

Sometimes mutual fund companies allow you to check your statements online.

If you need more help, contact a financial advisor.

Warning

Irregular activity to look for on your statement include unauthorized distributions (transfers and liquidations).

The fees and costs of mutual funds vary from fund to fund. Be sure to read the mutual fund prospectus.

Things You'll Need

  • Computer with Internet connection

  • Telephone

  • Printer

  • Envelope

  • Stamp