11-Sep-2004
By Amy B. Crane
You've done your research and found the right mutual fund for you. Time to sit back and relax? No! Time to make a decision about where you're going to purchase that fund.
Your decision about where you buy a fund carries implications for as long as you own a fund. It affects how many and what kind of statements you receive, and what kind of service options you get. Each of the purchasing alternatives -- fund company, fund supermarket, and full-service or discount broker -- has its advantages and disadvantages.
Many investors purchase their mutual funds directly from the fund company. These fund companies frequently have user-friendly Web sites that make it easy to complete a purchase. You can download a fund prospectus, read annual and semi-annual reports, fill out and even electronically sign and transfer funds.
If you're not comfortable with electronic signatures and fund transfers, you can go to the company's Web site, print out the fund application, write a check and mail it to the fund company. For those who would rather use the phone, many fund companies have 800 numbers and are happy to mail prospectuses and applications to potential customers.
If you're looking for a place where you can purchase many funds through one outlet, a fund supermarket may be for you. Fund supermarkets offer a wide variety of funds plus the convenience of consolidated statements. However, each supermarket is different and it can require some time and effort to find the best deal.
There is a wide variety in the offerings from the mutual fund supermarkets in terms of what funds are available, what minimum purchase is required, and the whether a particular fund is available without a fee. Morningstar's Quicktake reports provide specific information about a fund, including the fees, expenses, purchasing minimums and cost projections. There is also a list of the outlets where a particular fund is available. The Quicktake reports are at the Morningstar Web site at www.morningstar.com .
Morningstar also has a list of brokers that offer funds, as does the mutual fund center at About.com (www.mutualfunds.about.com) . To hunt down the best deal on a particular fund, you need to do the legwork -- or fingerwork -- yourself, either by browsing through the supermarket Web sites or calling their 800 numbers.
The major mutual fund supermarkets -- and many brokers -- offer thousands of funds for purchase. E-Trade offers more than 5,000 funds. Muriel Siebert offers more than 8,000 funds; of those, many are no-load funds. T. Rowe Price has nearly 3,000 no-load funds available from 100 different fund families, and an additional 7,000 more with sales charges or loads. Load funds charge a service fee or commission, while no-load funds have no service fees.
Fund supermarket Web sites make it convenient to search for funds and find out about purchasing costs. They usually state investment minimums and any minimums for systematic investment accounts. Systematic investment accounts are those in which you invest a certain sum each month to purchase a particular mutual fund or funds.
For many investors, a low minimum initial investment is an important consideration when buying a mutual fund. If the fund you like charges a $10,000 minimum to buy the fund, and you don't have $10,000, you are out of luck.
Also, if you plan on adding to your fund investment regularly, you'll want to see a low minimum for continuing investments. Many funds allow automatic monthly investments from your checking account for as little as $25 a month. Others have a $250 minimum, which may be out of reach for some investors.
If you need a low minimum investment and automatic purchase, you can search the different brokers and supermarkets with this objective in mind. While you may not be able to find the exact fund that you want, frequently you can find a similar fund with no load and a low investment minimum.
Outside of the fund supermarkets, many brokers -- online, discount and full-service -- offer access to mutual funds. If you are intent on buying a particular loaded fund, it doesn't make any difference whether you buy that fund directly from a fund company, a full-service broker, a discount broker or a fund supermarket. Many online brokers, like the fund supermarkets, offer a variety of no-load funds. This can be convenient for people who like to purchase both funds and stocks.
Consolidated statements are one advantage that fund supermarkets and brokerages can have over individual fund companies. With the fund supermarkets and the online brokers, even if you purchase shares from different fund families, you get a consolidated statement reflecting all your holdings. If you purchase funds directly from fund companies, you must deal with multiple accounts and multiple statements.
With a wide variety of options available, the purchasing of mutual funds is another aspect of investing in which some research can pay dividends. For long-term investors, it's always worthwhile to invest the time to decide where you will be the most comfortable with your mutual fund and stock investing.
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Tip of the Month:
Looking to learn more about a particular mutual fund? Morningstar's Quicktake reports provide free, comprehensive information about a fund's portfolio, management, performance and costs. Go to www.morningstar.com and input the fund's ticker symbol.
