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How to Buy Mutual Funds Online

By Michael Flannelly · June 10, 2022 · 6 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

How to Buy Mutual Funds Online

In the past, most people worked one-on-one with financial advisors and brokers to help build and manage their portfolios. Often, through these financial professionals, investors could buy and sell mutual funds. However, online investing has changed this model quite a bit. In fact, it can be quite cost-effective to buy mutual funds online yourself.

A mutual fund can help you create a balanced and diversified portfolio so you don’t have to spend your days poring over the stock market. Thus, it helps if investors know what mutual funds are and know how to buy mutual funds online.

What Are Mutual Funds?

Mutual funds are a type of investment vehicle made up of a pool of money from many different investors. The money in the fund is then used to buy various assets, such as stocks, bonds, and other securities. When you buy a share of a mutual fund, you’re buying a fraction of all the securities in the fund. By doing this, you benefit from diversification.

For most beginning investors looking to put money into an investment portfolio, it would be difficult, expensive, and time-consuming to buy enough individual stocks and bonds to create a balanced portfolio.

Buying shares of a fund, on the other hand, gives you access to more diversity. So, if one of the assets in your mutual fund tanks, that loss could be balanced out by other securities that may be still performing well. On the other hand, if you only had your savings invested in the stocks of two or three companies, and the shares of one of those companies crash, you’ll take a more significant loss.

Mutual funds are overseen by portfolio managers who monitor the holdings in the fund, make adjustments, and rebalance the fund as necessary to achieve higher returns for their investors.

The funds can be actively managed or passively managed. An actively managed fund is one in which securities might be more heavily traded with the hopes of bringing high returns. In contrast, a passively managed fund tracks an established index, like the S&P 500, making smaller adjustments to align with the index’s performance.

💡 Recommended: Active vs. Passive Investing: Differences Explained

What Are Some Examples of Mutual Funds?

There are many different types of mutual funds that are made and managed to give investors access to different investment strategies. Here are a few categories of mutual funds:

Asset class funds

These are funds designed around the concept of investing in similar types of assets with similar risks, such as small-cap growth stocks or high-yield bonds. These mutual funds help you diversify over a single asset class and are just one part of a balanced portfolio.

Industry funds

Industry funds, sometimes called sector funds, invest in a mix of securities within a specific market or industry, such as technology, oil, or agriculture. Like asset class funds, they help you invest in a range of companies within a specific area.

Target date funds

Target date funds work a little differently than asset and industry funds. They are a set-it-and-forget-it investment tool designed to help you grow your investments over a set period. Many investors use target date funds to help build wealth for retirement.

For instance, a forty-year target date fund will carry higher risk securities, like stocks, in the early years of the time horizon with the goal of potentially high returns. Then, the fund will steadily shift towards lower-risk investments, like bonds, designed to preserve capital over time. These can be a good option for those who don’t want to spend a lot of time managing their 401(k)s or IRAs.

Exchange traded funds

Exchange-traded funds (ETFs) are similar to mutual funds. Both are professionally managed investment funds and offer investors slices of the portfolio. However, investors trade ETFs on a stock exchange, and like a stock, its value changes throughout the day. In contrast, a mutual fund is only priced once a day based on its net asset value (NAV) and is bought and sold through its sponsor.

💡 Recommended: ETFs vs. Mutual Funds: Learning the Difference

Pros of Buying Mutual Funds

Diversification

By investing in a mutual fund, you can spread your investment across a broad range of industries, companies, and sectors, which can help to mitigate risk.

Professional Management

Mutual funds are managed by professional portfolio managers who have the experience and expertise to make investment decisions on your behalf.

Reinvestment

Investors can take advantage of dividend, interest, and other income reinvestment in a mutual fund. For example, when a mutual fund pays out dividends, investors can usually reinvest the money without any fees. This can help investors grow wealth by compounding returns.

Convenience

Mutual funds offer a degree of convenience, as you don’t have to do extensive research and select individual investments.

Cons of Buying Mutual Funds

High Fees

The investment fees associated with mutual funds can be high, eating into your investment returns. Because mutual funds are professionally managed, they will charge fees to cover the management and operation expenses.

High Investment Minimums

Many mutual funds have investment minimums, requiring you to invest anywhere between $500 to $5,000 to participate in the fund. This can be an issue for investors who don’t have the initial capital to join the mutual fund.

Liquidity

Mutual funds can be illiquid because they can only be bought and sold once daily. This means that it can be challenging to get your money out when you need it.

Complexity

Mutual funds can be complex, making it difficult for investors to understand what they are buying.

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What Are the Best Performing Mutual Funds?

Determining the best performing mutual funds depends on an individual’s financial goals and risk tolerance. The best performing mutual fund for short-term growth probably won’t be the best mutual fund for long-term growth.

Before choosing a mutual fund to invest in, consider your investment goals, how much risk you’re comfortable taking on, and how involved you want to be in managing your portfolio. Working with a professional can often help you clarify your goals and choose mutual funds that work for you.

How to Invest in Mutual Funds Online

You can invest in mutual funds through an online brokerage firm or the investment firms that offer and manage them.

One advantage of dealing directly with the financial firms that offer the mutual funds is that they have no sales commissions or brokerage fees. This means that these fees will not eat into your investments. However, these mutual funds will still have management fees that investors need to consider.

Additionally, if you invest in a mutual fund directly through an investment firm, your mutual fund options are limited to that company’s various offerings.

Once you decide on whether you want to deal with an online brokerage or directly with a mutual fund provider, you can follow these steps to invest in mutual funds online:

Step 1: Open an Account

To invest in mutual funds online, you will need to open an account with a broker or financial firm that offers this service. Depending on the company, you may be able to open an account as an individual or as part of an employer-sponsored retirement plan.

💡 Recommended: How to Open a Brokerage Account

Step 2: Research

Next, you want to determine what type of mutual fund investment best suits your goals and risk tolerance. As mentioned above, there are many types of mutual funds available, each with different characteristics. It’s important to research and choose the mutual fund you wish to purchase.

Step 3: Invest

Once you have chosen the funds you want to invest in, you will need to fund your account and make your investment. Investors can only execute mutual fund transactions once per day after the market closes, and it typically takes one to two days for the transaction to close.

The Takeaway

Investing in mutual funds allows investors to diversify their holdings in a single product. Mutual funds offer options focusing on asset classes, time horizons, and risk tolerances for investors of all experience levels. Fortunately, investors can easily buy and sell these products through online brokerages and investment firms.

However, mutual funds have drawbacks in that their transactions are executed only once per day after the market closes. In contrast, exchange-traded funds (ETFs) trade throughout the day on stock exchanges, with many shares exchanging hands at various prices as buyers and sellers react to changes in the market. With SoFi Invest®, you can trade ETFs and individual stocks with no commissions for as little as $5.

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FAQ

Can I buy mutual funds on my own?

Investors can buy and sell mutual funds through an online broker or directly from a mutual fund company.

How can I buy mutual funds directly online?

There are a few different ways to buy mutual funds online. One way is to go through a broker that offers online trading. Another way is to use a mutual fund company’s website. You can buy a mutual fund once you have an account through an online brokerage or investment firm. Mutual fund purchases are executed once per day after the market closes, and it typically takes one to two additional days for the transaction to close.

What is the best way to buy mutual funds?

There is no best way to buy mutual funds. Depending on your preferences, you can buy and sell a mutual fund through an online brokerage firm or directly from the fund’s financial company. Additionally, investors can work with financial advisors to buy and sell mutual funds.


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