How to invest in mutual funds online?

Investing has been around as long as the markets have, so there are numerous types of investment strategies available at this point. Mutual funds are the simplest and less stressful for a person. Over the past few years, this area has received the most money than any other in the entire financial history. In 2000, according to statistics, every American family had at least two open mutual funds accounts. This indicates the profitability of this method for people with practically any budget. Beginners can set out with an assistant at first, but it’s most profitable to earn independently online without a broker. From this article you will learn the most effective strategies for investing without losing money.

Mutual Funds - Guide to Types of Mutual Funds and How They Work

How do mutual investment funds work?

Mechanics of the financial market

Mutual funds operations share several main points:

  1. The depositor doesn’t acquire company securities. Users receive a share in a firm that independently deals with the purchase and sale of assets. 
  2. In this market, the risks are minimal, since all monetary transactions are handled by professional investors.
  3. No over-the-counter risks. Constant audits exclude the possibility of dishonest income distribution.
  4. The return on investment in mutual funds is much higher than the interest rate offered by the banks. The investment option is stable: securities are purchased from companies at different phases of development. This ensures steady earnings and the potential for asset price growth.

Investors’ funds are carefully monitored by professional analysts, financiers and economists. Such funds provide their shareholders with management, diversification, liquidity and convenience of investments.

Types of mutual funds

The mutual investment market offers a wide range of assets:

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  • Stocks, the most common tool with a long-term investment perspective;
  • Bonds, where funds are invested in debt obligation instruments;
  • Mixed (balanced) funds, where funds are used to purchase several types of assets simultaneously (usually stocks and bonds);
  • Real estate funds, the growth level is low, but the shareholder receives additional income in the form of rent;
  • Money market funds, which have minimal volatility, the main goal is not making a profit, but short-term money storage.

In addition to the varieties described above, mutual funds can be open and closed. A closed mutual fund is an organization with a limited number of securities. Open funds have no restrictions and are available to all investors.

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How to buy and sell mutual fund assets?

Choosing a suitable fund is a difficult process, since back in the 2000s there were more than 35,000 of them in the world. Investors can purchase shares from the fund itself, from brokers or independently via the Internet. Buying assets online directly will save time and money, eliminating the waiting. 

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There are five main ways to buy securities:

  1. A foreign broker. It is more profitable to work with American or European companies. Pay attention to those firms that work with clients from all over the world. 
  2. A foreign bank. Requires confirmation about shareholder’s income.
  3. Through management companies. 
  4. Through intermediary agents.
  5. Through foreign insurance companies.

Online purchase is easier and more convenient, and can be carried out in three ways:

What is the best way to invest in mutual funds?
  1. Investment companies. There are many organizations on the market offering buyers a range of choices – from passively indexed to actively managed and high-yield funds. 
  2. Companies providing investment and financial services. Such companies usually specialize in selling shares that were bought through other firms. The option is convenient, but the main purpose of these services is their own profit, and users will have to pay transaction fees.
  3. Brokerage services. To do this, a user needs to open an online account at a brokerage office. It’s the most expensive way to go, but it provides the widest choice of mutual funds. 

When buying fund units, an investor can also choose whether they want to receive dividends or redirect the received income to a future period.

Pros and cons of mutual funds investing

Mutual funds are a fairly popular tool that has both strengths and weaknesses. 

The main advantages of investing in mutual funds:

  • Ease of use. It’s simple to invest both through professional brokers and independently online.
  • The role of investors is minimal. The management company is the main actor;
  • Versatility. Investors get access to almost all market segments;
  • Availability. Assets are easy to purchase even with a minimum deposit;
  • Reliability. The operation of mutual funds is legal and is directly regulated by the country in which the company is registered. 

The disadvantages aren’t critical, but still exist:

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  • Working with mutual funds is more difficult than investing in ETFs (index funds with minimal fees);
  • There’s no guarantee that the management company will always bring a decent profit; it all depends on the market situation, but there’s always a possibility that the firm will close the year with losses;
  • Quite high fees in comparison with ETF. Investing may incur additional costs, which may reduce the income from the securities you have purchased;
  • The investor has fewer rights and control. Mutual funds don’t give clients much control over the securities they own;
  • Taxation. If your funds are in a taxable account (a brokerage account, for example), there’s a high risk of falling under heavy taxes on investment income;
  • Natural investment risks. Since mutual funds invest in stocks and bonds, there’s a certain level of danger associated with a decrease in the value of securities.

We hope that our article has helped you to understand how to invest in mutual funds online. This option is a perfect solution for people who don’t have the time, desire and/or the skills to independently put together an investment portfolio. To start earning, you just need to find a reputable organization that suits your needs and invest money there.

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