Step 5: Make the Purchase

Once you have selected the fund that is right for you, you are ready to make the purchase. There are three ways you can purchase a mutual fund: (1) you can make the purchase directly through the mutual fund company; (2) you can work through a financial professional; or (3) you can use a mutual fund supermarket.

Buying through the mutual fund company: If you plan to buy your mutual fund directly from the mutual fund company, your mutual fund will likely be a no-load fund without annual custody fees. You will have access to many or all of the mutual fund company’s services, including a toll-free number and Internet account access. Some mutual fund companies’ systems are also compatible with major money-management software, such as Intuit Quicken or Microsoft Money.

Buying through a financial professional: If you are planning to buy your mutual fund through a financial broker, banker, or planner, it is likely that you will be charged a load on the sale: a load is similar to a sales commission. The financial professional will likely sell you a class of shares (called R shares), which will rebate the financial professional a commission, or the financial professional will charge you an annual custody fee. Many mutual funds have multiple classes of shares, each with different loads and management fees. Research has shown that, on average, individuals who invest in load funds do not gain higher returns than individuals that invest in no-load funds. Moreover, when the amount of the sales commission charge is accounted for, the load funds typically do not perform as well (Matthew R. Morey, “Should you Carry the Load? A Comprehensive Analysis of Load and No-Load Mutual Fund Out-of-Sample Performance,” Journal of Banking & Finance, vol. 27, no. 7, 2003, pp. 1245-1271).

If you decide to purchase your mutual fund through a financial professional, you will still have access to all the services offered by the mutual fund company. Whether you buy directly from the mutual fund company or through a financial professional, you should check to make sure you will be able to access your account through Quicken, Money, or other computer software programs. Not all mutual funds can be accessed through computer software programs. Also, be sure that the amount you are willing to invest is larger than the minimum account size.

Buying through a mutual fund supermarket: If you plan to buy your mutual fund through a mutual fund supermarket, such as Fidelity Funds Network, Charles Schwab, or Jack White, you will still receive all the benefits offered by the mutual fund company. If you work with one of these companies, you will have access to a wide range of mutual fund companies. Mutual fund companies “give back” a portion of their management fees to the mutual fund supermarkets each month to compensate the supermarkets for bringing in new customers; therefore, mutual fund supermarkets usually charge you less for their services. Minimum account balances and management fees vary from fund to fund, but a custody fee is not generally charged on funds purchased through a mutual fund supermarket.