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Shopping at Fund Supermarkets
By James
H. Lowell III • Bankrate.com
There are two easy ways to purchase mutual funds outside
of what's available through your retirement plan: directly from
the fund company or through a fund network. (There's also one lousy
way -- through a broker who will charge you for the privilege. Forget
about it!)
As always, be sure to take a look at the prospectus
before you purchase shares of a fund. You can obtain a fund's prospectus
by calling the mutual fund company -- many have toll-free numbers
-- or visiting its Web site. There are links to the Web sites of
dozens of no-load fund companies on the Mutual Fund Education Alliance's
Web
site.
Once you have figured out the types of funds that
are best for your portfolio and selected a few funds, you're ready
to roll.
Buying Direct
To buy shares of a mutual fund directly from the fund
company, all you need to do is send the company a check for the
amount you want to invest (or drop it off at a branch office if
there's one nearby), along with a completed account application
form.
Be sure to take advantage of features such as automatic
investing, which regularly transfers money directly from your checking
account into the mutual fund, so your investing process is both
specified and seamless (more on these smart ways to invest in funds
in Part 3 of our series).
Fund Networks
It's easier to buy funds from several fund families
today than it was just a few years ago, due to the introduction
of fund networks. Fund networks are basically supermarkets of funds,
offering hundreds of funds from most fund families. While there
are several fund networks to choose from, the three best are Charles
Schwab's Mutual
Fund Marketplace, Fidelity's FundsNetwork,
and TD Waterhouse's Mutual
Fund Network.
Opening an account with a brokerage that offers thousands
of funds in its network is a great idea for most fund investors,
particularly since the initial investment can be as low as $500
for an IRA account or $1,000 for a taxable account.
Is One Better Than All?
Should you invest in funds from different fund families?
As with investing too much of your money in one fund, or in funds
that are very similar to one another, investing your money in funds
belonging to one fund family can limit your portfolio's diversification.
That said, it's also a great way to simplify the process
and keep track of how your funds are performing. There are only
two fund families where this move would be a good idea: Fidelity
and Vanguard.
When it comes to these two fund families, I firmly believe that
one is better than all, since each fund family offers a broad enough
range of expertly managed funds to create a thoroughly diversified
portfolio of top-notch funds.
Although many fund companies will deny it, group-think
is a pervasive and persuasive influence on fund managers under one
family's roof. Also, some fund families have historically delivered
better results in stock selection, while others have surpassed their
peers with bond selection, while still others have a better record
abroad than at home. Participating in a fund network will enable
you to select funds that have delivered superior results in the
past, as well as enjoy access to lesser-known and newer funds.
With the advent of the networks came a new fee designation
for mutual funds -- No Transaction Fee fund. Basically, an NTF fund
has no up-front transaction fee associated with your purchase. If
a fund charges a sales load, however, then it isn't an NTF fund,
though some load funds sold through a fund network might waive their
loads.
Although you don't need a brokerage account to invest
in mutual funds -- since you can buy direct from the fund company
-- having an account at a brokerage firm gives you access to two
of the best innovations in the mutual fund industry. They are tax-advantaged
retirement plans and mutual fund networks. Next week, we'll take
a look at the different types of accounts and their advantages.
-- Posted: July 17, 2000
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