Mutual funds are a great way to invest in a variety of securities instead of buying individual stocks or bonds. Learn how to pick the best funds for your portfolio.

Your Guide to Investing in Mutual Funds

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Mutual Funds and How They Work
Frequently Asked Questions
  • How do I invest in a mutual fund?

    Before investing, consider how much money you have to invest and how much risk you are willing to take. Based on that select a fund that aligns with your investment strategy. Once you’ve chosen the fund, you can purchase shares in it through your brokerage account or directly open an account with the fund company. You can also invest in mutual funds through your IRA or 401(k) plan. 

  • Which mutual fund should I invest in?

    There are different types of mutual funds and once you narrow the type that fits in with your investment goals, compare different funds in that category using a fund screener. Evaluate funds based on their historical performance and how they have performed compared to their benchmark index. Consider funds with low expenses or no loads. Avoid funds with a high turnover ratio.

  • What is a no load fund?

    A no load fund does not charge sales load. Sales load may be charged upon purchase of fund shares (front-end load) or upon the sale of fund shares (back-end loads). Like commissions, loads are paid to the broker for selling the fund (or advising an investor to buy the fund). You can buy no load funds directly from the fund company or through an advisor. No load funds may still charge other fees.

  • What is a mutual fund expense ratio?

    Expense ratio is one of the fees charged by mutual funds and it captures a mutual fund’s operational costs. This cost is passed on to the investors as the expense ratio is deducted from the fund’s total assets each year. Expense ratio impacts your return on investment as a higher expense ratio means lower returns. You can easily find a fund’s expense ratio on its website.

  • What is a good expense ratio for a mutual fund?

    For most mutual funds, expense ratios tend to range from 0.25% to up to 1.5% but rarely significantly higher than that. Unless you have specific reasons to invest in a particular mutual fund, it’s generally a good idea to stick with lower expense ratios. Actively managed funds have higher expense ratios than passive funds.

  • What is the difference between a mutual fund and an ETF?

    While mutual funds and ETFs both use pooled investor funds, there are very different. ETFs trade on exchanges like stocks and trades occur at the market price. Shares of mutual funds are traded based on their net asset value calculated only once a day. Mutual funds can be actively or passively managed. ETFs are typically passively managed leading to lower expenses compared to mutual funds.

Key Terms

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