Buying Mutual Funds

Buying Mutual Funds
As an individual investor, you have many avenues available to you if you want to invest in mutual funds. You can invest through a company-sponsored 401(k) plan, through a personal IRA account or through a standard brokerage account. But regardless of which avenue you choose, you should be aware that mutual funds don’t trade like stocks. You can buy or sell shares of stock anytime during market hours, but you can only buy or sell mutual funds at the end of the day.
Mutual funds only trade at the end of the day because you trade mutual funds based on their net asset value (NAV). To determine the NAV at the end of the trading day, the mutual fund company looks at all of the assets that are in the basket, determines their value and divides that number by the total number of outstanding shares in the fund. As you can imagine, this can be a complicated process and the fund company only wants to go through it once a day once the market closes.
Mutual-fund companies recognize the inflexibility associated with only being able to trade once a day can be difficult. So to offset a portion of this inflexibility, they allow you to purchase fractional share of the mutual fund.
Imagine a mutual fund is trading at $58.50 and you have $100 you want to invest. If fund companies didn’t allow fractional shares, you would be able to buy one share for $58.50, but the rest of your money would have to wait until you could save enough to buy another full-priced share. But because funds do allow fractional trading, you can utilize your entire $100 and own 1.71 shares.
Now that you know how to buy a mutual fund, how do you search and make sure you’re buying a profitable fund?