Funds Beginner: Introduction to Mutual Funds

Introduction to Mutual Funds What Is a Mutual Fund and How Does It Work? Buying and Redeeming Mutual Funds Mutual Fund Expenses Mutual Fund Income and Distributions Stock Mutual Funds Bond Mutual Funds Money Market Mutual Funds Hybrid Mutual Funds Summary of Mutual Funds
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Buying and Redeeming Mutual Funds

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Buying and Redeeming Mutual Funds

You can buy mutual fund shares directly from a mutual fund company or from a securities broker. Either way, buying and redeeming are relatively easy. To buy shares directly from a mutual fund, you send money to the fund. Redeeming shares works the same way. In all cases, the customer (you) executes all transactions with the mutual fund company. Many funds also allow you to redeem shares over the telephone.

Invest on auto pilot

You can also set up an automatic investment plan to do your work for you. Under this plan, you can have a fixed amount of money withdrawn monthly from a financial institution account and sent to the fund. Using this option requires that you first authorize it on your application form. Most mutual funds allow it. Many funds require initial investments of $1,000 or more, depending on the fund. However, many of them waive this requirement if you agree to an automatic investment plan that withdraws from your account until you reach the required minimum.

Things To Know

  • You can buy mutual fund shares directly from the fund.
  • You can also buy shares through a broker.
  • You can also set up an automatic investment plan to do your work for you.

Use a broker

Buying shares from a broker works much the same way. The primary difference is that the broker saves you the work of executing your own orders, since in this arrangement it is his or her responsibility to execute all transactions with the mutual fund company. The majority of mutual funds purchased from brokerage firms also allow the customer to benefit from the ability to easily redeem shares or participate in automatic investment plans. For specific details on how your brokerage fund handles the processes of buying and redeeming mutual fund shares, be sure to ask your broker.

Exchange-traded funds

Note: exchange-traded funds have become more popular recently. Unlike open-end funds, exchange-traded funds do not buy and sell securities in their portfolios daily. Since the portfolio value always depends upon the market value of the same pool of securities, exchange-traded funds are traded in the secondary stock market rather than redeemed by the mutual fund company, as are open-end mutual funds.