Do you have to have a large chunk of $$$$$ in order to invest in a mutual fund? The answer is no, it is possible to invest in a mutual fund even on a modest budget.
A lot of mutual funds do have a minimum entry-level requirement, and it is typically in the 500 USD to 5,000 USD range for a retail mutual fund. With that staid, there are retail mutual funds out there that will accept you even if you have considerably less than $500 to invest. Some even allow you to get started for as little as $10. Of course, institutional class funds and hedge funds are a different thing, and many of them will not let your through the door for anything less than $1 million or even more.
Open-ended and closed-end mutual funds
A closed-end mutual fund will issue a predetermined number of shares through an initial public offering (IPO). These shares are then traded on the open market. In essence, if you want to buy a share, you must match with someone willing to sell a share. The price of purchasing a share is determined by the normal forces of market supply and market demand.
An open-end mutual fund will not be comprised of a set number of shares. Each time someone wants to buy shares in the fund, new shares are created. It is very common for open-end mutual funds to require a certain minimum investment, typically in the $500 – $5,000 range.
Having a minimum requirement lowered or waived
Some open-end mutual funds are willing to lower or waive their minimum investment requirement if the investment is made in a retirement account (e.g. IRA), a college savings plan, or similar. You may also be able to negotiate the requirement if you are willing to agree to automatic monthly purchases of new fund shares.
If you have found a fund that you like, but their minimum investment requirement is too high for you, do not hesitate to contact them and ask.
Be aware of the fees
Regardless of budget, it is important to keep fund fees into account when selecting mutual funds. A high fee does in no way guarantee a high yield.
Also remember: When you pay $1 in fees, you are not just losing $1 – you also lose the gains that this $1 could have made you if you had invested it instead of spending it on fees.
This does not mean that high fees are automatically a waste of money. There are mutual funds that investors are willing to pay a lot for because they actually produce excellent results.
How can I find a mutual fund with low fees?
Generally speaking, a passively managed fund with have lower fees than an actively managed fund, so that category is a good place to start looking.
Also, quant funds tend to have lower fees than funds doing fundamental analysis. A quant fund is an fund whose securities are chosen based on numerical data compiled through quantitative analysis.