3 Ways to Invest in a Mutual Fund

Mutual fund investing is generally considered a safe way to diversify your portfolio, without selecting individual securities. You can simply trust the fund's manager to select the securities the fund will own, and you will sit back and, hopefully, collect returns on those decisions. Mutual fund investing can supplement your income on a yearly basis since the funds pay out dividends and capital gains frequently. If you are interested in purchasing shares in a mutual fund, there are three general methods to go about the investment. 

#1 Choose a Proprietary Fund

Proprietary mutual funds are house name funds. They are offered by the same institution that is selling the funds. For example, banks, brokerage houses and other investment funds will offer house name, proprietary funds. These can be advantageous because you do not have to pay a broker to purchase shares in the fund. The entire sum of your investment will remain in the fund for growth in the future. However, this does not mean there will not be fees along the way. Transaction fees are common in all mutual funds. Hopefully, the fund manager will look to minimize these fees in any strategy possible. You can expect a small sum to be allocated toward maintenance and transaction fees, though, even in a passively managed mutual fund.

#2 Go through an Adviser

You may have a trusted adviser who helps you choose your investments. You can go to this individual, who is acting as a broker, and purchase a non proprietary fund. This means the broker you are working with is not selling the fund directly, which many believe contributes to a less biased source of advice. Further, many individuals would rather have a broker complete analysis on a mutual fund rather than completing the analysis themselves. This is particularly true of novice investors who may not understand as much about mutual fund statistics and ratings. You will pay a hefty convenience fee for the broker's services, however, so use this option carefully. You can contact brokers like Fidelity, T. Rowe Price or Prudential to guide your investments, and compare their fees to understand the cost of your broker.

#3 Allocate your Retirement Savings to a Fund

If you have a manger for your 401(k) or IRA, this manager can act as an adviser for mutual fund investments. A traditional 401(k) is managed by an individual adviser selected by your employer. This means that manager will invest your money into mutual funds of his or her choosing perhaps without your advice. When you use a company-sponsored 401(k), you agree to go along with this. In an IRA, you have more control and say over the funds to which your money is allocated. You can ask your IRA manager to advise you on investing in mutual funds if you have not already done so. In this case, you will realize tax advantages on your contributions and earnings, but you cannot collect your capital gains or payments until you reach the minimum age to withdraw from your account, which is 59 1/2.

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