Mutual funds are among the most sought-after investing vehicles out there. For newbie investors, it might sound a bit difficult to understand. But really, it’s simple.
However, it’s also not simply the same as ETF or stock investing. Here, we got you a quick primer on mutual fund investing. Read on and learn what you can and cannot do with mutual funds.
How to Buy Shares
This one’s pretty straightforward. Although mutual fund shares do not trade freely, you can easily buy directly from the fund. You can also use the services of an authorized broker through an online platform.
When you buy mutual fund shares, remember to check the type of the fund and the terms of the investment. Most of these funds require you to put in a minimum contribution, though not all do this.
And before you buy shares, you can check the costs you have to pay. These funds carry annual expense ratios derived from a percentage of your investment.
There are also a number of fees that mutual funds charge.
Load fees are a thing. These are practically the fund’s commission charges. But the money doesn’t go to the fund. The fees are for brokers who sell the shares of the funds to the investors.
Remember that not all funds carry upfront fees like this. Others carry backend load fees if you choose to redeem your shares before a predetermined time.
Trading and Settlement
When you start trading mutual funds, you need to check the process through which your trades will go.
The trade date refers to the day when you place an order to buy or sell. The settlement of the trade happens within two days after the date of trade, as per the Securities and Exchange Commission (SEC).
There are mutual funds that pay dividends. Of course, your tax liability should be protected. Every dividend distribution you receive add up to your taxable income every year.
Is earning dividend income one of your primary goals? If not, it’s best not to buy into these kinds of funds.
Now, if you want to go for it, you have to keep in mind the following:
- The ex-dividend date is the last day when shareholders can be eligible for the dividend distribution.
- Remember the SEC’s rule about the settlement period? Take note that because of that, the ex-dividend date usually falls three days ahead of the report date.
- The report date refers to the day when the fund lists down the shareholders who will receive dividend payments.
- Buy the shares ahead of the ex-dividend date for your name to be included in that list.
- To avoid the tax impact, delay the purchase until after the record date.
How to Sell Shares
Similar to buying shares, you can sell mutual fund shares directly through the fund itself or through an authorized broker.
You will receive an amount equal to the number of shares you got multiplied by the net asset value. Of course, you’d have to pay all fees and due charges.
That’s how you start investing in mutual fund shares. Although it’s very unique in its structure and regulations, you probably see how it also is easy to manage once you get the ins and outs. So, learn the ropes now and earn profits later.