Before, you had to do everything in person and directly. The same is true when it comes to trading mutual funds. But with the advent of technology and the internet, things have changed. You can now buy and trade mutual funds online. Here is a short guide to doing just that.
Where to Buy Mutual Funds Online
Out there, a plethora of investment websites slash trading platforms competes. However, there are generally three ways in which you can buy a mutual fund online.
1. Investment Companies
Perhaps the most obvious choice is to purchase mutual funds directly via the investment companies that offer and manage them. These mutual funds come in different sizes and shapes.
Each of them offers at a variety of funds that include passive index funds, actively managed funds, and high-yield bond funds. These funds are created to appeal to different kinds of investors who unsurprisingly have different investment goals.
The benefit of investing directly on these companies is that you don’t have to shoulder a lot of commissions and fees and more of your money will go directly to your investment. The downside is that you will be limited to the company’s choices of funds.
2. Investment slash Financial Services Companies
If being limited to one kind of a fund family doesn’t sound so hot to you, there are investment companies that allow you to use an in-house account for you to buy and sell mutual funds and exchange-traded funds that other firms provide.
However, the tradeoff is that these firms want to promote their proprietary funds and that means you may have pay for additional transaction fees or pay commissions if you choose funds outside of their own.
The last option is to open an online account at a brokerage company. However, it will possibly be the most expensive way.
Usually, these types of accounts charge a transaction fee/commission for every trade, and they may also charge other account setup and maintenance fees. On the other hand, they will provide the largest number of mutual funds to choose from.
It’s quite easy to find an account that charges relatively lower fees, especially if you comb through the number of discount brokerages.
There are many times when fees are minimum or sometimes waived for clients that have online accounts, eschewing paper statements and human advisory services.
Choosing a Mutual Fund
After you’ve chosen where to trade mutual funds online, the next step is deciding which kind of mutual fund you exactly want to trade. Here is where your real work starts.
Firstly, you need to consider your risk tolerance. Most of the time, investments that promise higher potential gains also come with a larger amount of risk than those investments that offer more modest amounts of gains.
So if you think you have a low risk tolerance, you may want to stay clear of mutual funds that invest in more volatile securities or those that use more aggressive investment strategies to try to beat the market.
Afterwards, you have to decide what you want to achieve with this investment. If you prefer a fund that can provide consistent income every year, you may want to choose a mutual fund that pays dividends or bond funds.
There are many ways in which you can determine which mutual fund you should invest in. The trick is to be really clear about your goals and your ability to manage the risks that you allow.