When considering investment options, there are many facets to the investment vehicle to consider. While most investors look at the ROR, rate of return, it is also important to look at some of the less common facets such as methods of distribution.
As a general rule, when investing in mutual funds, there are a few different options in terms of purchase and distribution of shares in the fund. As an investor, it is important to understand these options as you consider which mutual fund in which to invest your dollars as this may determine, to some extent, which mutual fund you will place most of your investment dollars. To determine the distribution option of the mutual fund you are considering, the most common source of information will lie in the mutual fund’s prospectus.
Upon examining the prospectus of the mutual fund, you may be considering will first outline the minimum investment requirements, usually in increments of $500.00 with the bond funds requiring high minimum investments than that of the stock funds. To offset these large investments, many mutual funds will establish plans through an employer or payroll deduction. So, this will be the first issue to be addressed; how much do you have to invest to even enroll in the investment plan?
In terms of distribution, you will want to look at the way in which the mutual fund allows for purchase of shares. Do they sell directly to the public or is a team of sales professionals involved in the transaction? If a sales team is involved, you can anticipate that fees will be required at the time of distribution. To offset the fees associated with purchase and distribution, you will want to shop around to the various brokerage firms and financial planner, find one that services the mutual fund you are interested in, and then shop the fees associated with each.
If, however, you are lucky enough to identify a great mutual fund investment that is sold directly to the public, the fees associated with sales staff are often negated. The disadvantage, here, lies in the lack of professional advice in terms of investment returns. However, with some research into the mutual fund, you will avert the fees charged in both buying the investment and also requesting distribution.
As with any investment consideration, the key to your most successful outcome will lie in your due diligence to research and become educated in the various facets of the investment vehicle. When considering mutual funds, it is important to look at the ROR, rate of return, but to also look at the methods and fees associated with distributions.