Mutual fund companies, known legally as open-end companies, are investment companies that take money from a large pool of investors, mingle those funds and use them to buy a portfolio of securities. Each investor owns a tiny piece of each security in the fund. Different mutual fund companies use different methods for selling shares to investors. Some funds sell their shares only through investment brokers.
Some mutual fund companies offer shares for sale directly to the investing public. You can buy shares of these funds from the mutual fund itself. Other mutual funds offer shares through a sort of mutual fund supermarket at online brokerage firms. If you have an account with such a broker, you can purchase shares of these funds online. Still other funds restrict the sale of their shares to a dedicated sales force, which typically includes investment brokerage firms that have a relationship with the fund. If you want to buy shares of those particular funds, you'll have to buy them through a broker.
Education and Advice
Mutual funds are complex financial products, and thousands of funds are available. Each fund has its own specific investment objectives, risk tolerance and management philosophy. Trying to find just the right fund or funds that match your investment needs can be a daunting task. Your investments broker can help educate you on different funds that will be appropriate for your situation, and can advise you on which ones to avoid.
Sometimes it's easier to deal with one individual or firm that you're comfortable with rather than a wide variety of financial companies scattered across the United States. By purchasing mutual fund shares through your broker, you can have all of your investment resources, reports and statements in one convenient location.
Investment brokers typically work on a commission or bonus structure. If you use a broker to buy your mutual fund shares, chances are you'll either pay a sales charge, known as a load, or a transaction fee. Some brokers might also handle no-load funds, and some mutual funds that you can buy directly still charge a front-end load. A mutual fund's fees and expenses, including any sales load, will be included in the fund's prospectus. The Securities and Exchange Commission recommends reading and understanding the prospectus before you invest any money, whether you go through a broker or not.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.