You need a brokerage account, money to invest, and a choice of fund

Investing in mutual funds means buying shares of a fund that holds a basket of stocks, bonds, or other securities. You cannot buy mutual fund shares directly from the fund company in most cases — you buy them through a brokerage, which is a financial firm licensed to handle investment transactions. The brokerage holds your account, processes your purchases, and keeps track of what you own.

The basic steps are: open an account with a brokerage, deposit money, choose which mutual funds to buy, and place an order. The whole process takes a few days to a week from start to finish, though the account setup itself can happen in an afternoon online.

Key Takeaways

  • You open a brokerage account online or by phone, provide identification and tax information, and link a bank account for deposits.
  • Most brokerages charge no account fees or minimum balance, but some mutual funds have their own minimums, often $500 to $3,000 for the first purchase.
  • You can buy mutual funds through a regular taxable brokerage account or through a retirement account like an IRA, each with different tax rules.
  • Mutual fund shares are priced once per day after the market closes, so you cannot control the exact price you pay when you place an order.
  • You can set up automatic monthly investments once your account is open, which removes the need to decide when to buy.

Choosing a brokerage and opening an account

A brokerage is where you hold your money and place trades. Common brokerages include Fidelity, Vanguard, Charles Schwab, E*TRADE, and Robinhood, though there are dozens of others. Most charge no account fees, no minimum balance to open, and no commission when you buy or sell mutual funds. The differences between them are usually in the research tools they offer, the funds available, customer service quality, and the user interface of their website or app.

To open an account, you go to the brokerage's website, click "Open an Account," and answer questions about your name, address, Social Security number, employment, and investment experience. You will need to verify your identity — the brokerage will ask for a driver's license or passport. You will also choose what type of account you want: a regular taxable account (called a brokerage account), a traditional IRA, a Roth IRA, or another retirement account. If you are unsure which type fits your situation, the brokerage's website usually has a brief questionnaire to help you decide, or you can call their customer service.

After your account is approved, you link a bank account so you can transfer money in. This takes one to three business days the first time. Once the money arrives in your brokerage account, it sits in cash and is ready to invest.

Understanding mutual fund minimums and fees

Most mutual funds require a minimum initial investment, usually between $500 and $3,000, though some have no minimum at all. After you meet the minimum, you can often add smaller amounts — sometimes as little as $50 or $100 — in future purchases. Check the fund's prospectus or the brokerage's fund details page to see the minimum before you buy.

Beyond the minimum, mutual funds charge fees in two ways. The expense ratio is an annual percentage you pay to cover the fund's operating costs — it typically ranges from 0.05% to 1.5% per year, depending on whether the fund is actively managed or passively tracks an index. This fee is deducted automatically from the fund's value each day, so you do not write a check for it. Some funds also charge a sales load, which is a commission paid when you buy or sell — this can be 3% to 6% of your investment. Many brokerages offer funds with no load, so you can avoid this fee by choosing carefully.

The brokerage itself does not usually charge you a commission to buy or sell mutual funds, though some older or smaller brokerages still do. Always check the brokerage's fee schedule before you open an account.

Placing your first mutual fund order

Once your money is in your brokerage account, you log in and search for the mutual fund you want to buy by its ticker symbol or name. The fund's page will show its expense ratio, holdings, performance history, and minimum investment. You enter the dollar amount you want to invest (or the number of shares, though dollar amount is simpler), review the order, and submit it.

Mutual fund orders are processed once per day, after the stock market closes at 4 p.m. Eastern time. If you place an order at 2 p.m., it processes at 4 p.m. that day at that day's closing price. If you place an order after 4 p.m. or on a weekend, it processes the next business day. You cannot choose the price you pay — you get whatever the fund's share price is at the end of that trading day. This is different from stocks, where you can place an order for a specific price.

After the order processes, the fund shares appear in your account, usually within one business day. You now own a piece of that mutual fund and will receive dividends or capital gains distributions if the fund pays them out.

Taxable accounts versus retirement accounts

A regular brokerage account is taxable, meaning you owe capital gains tax when you sell a fund at a profit, and you owe tax on any dividends the fund pays out each year. You report these on your tax return annually.

A retirement account like a traditional IRA or Roth IRA lets you invest in mutual funds with tax advantages. In a traditional IRA, you may deduct your contributions from your taxable income in the year you make them, and you do not pay tax on gains until you withdraw money in retirement. In a Roth IRA, you contribute after-tax money, but withdrawals in retirement are tax-free. Both types have annual contribution limits — for 2024, the limit is $7,000 per year if you are under 50, and $8,000 if you are 50 or older. You can only contribute if you have earned income that year.

If you are new to investing and do not have a retirement account yet, opening a Roth IRA and investing in mutual funds inside it is a common starting point because the tax-free growth compounds over time. Your brokerage can help you choose which type of account makes sense for your situation.

Setting up automatic investments

Most brokerages let you set up automatic monthly or quarterly investments, where a fixed amount transfers from your bank account to your brokerage and automatically buys a mutual fund you choose. This is called dollar-cost averaging, and it removes the decision of when to buy — you invest the same amount on the same schedule regardless of whether the market is up or down.

To set this up, log into your brokerage account, find the automatic investment or recurring purchase option, choose the fund, set the dollar amount and frequency, and confirm. The system will pull money from your linked bank account and buy the fund on the schedule you set. You can change or stop the automatic investment anytime.

Automatic investing is useful if you want to build a habit of regular investing without thinking about market timing, or if you receive a paycheck and want to invest a portion of it immediately.

What happens after you buy

Once you own mutual fund shares, you do not have to do anything unless you want to. The fund manager buys and sells securities inside the fund, and you simply hold your shares. If the fund pays dividends or makes capital gains distributions, your brokerage will reinvest them automatically (buying more shares of the same fund) unless you change that setting.

You can check your account balance anytime by logging into your brokerage. You can sell your shares anytime the market is open — the order processes at that day's closing price, and the money lands in your account within one to three business days. If you are in a taxable account, selling at a profit triggers capital gains tax, so keep track of what you paid versus what you sold it for.

If you are investing for retirement, most people buy and hold for years or decades, rebalancing occasionally to keep their mix of funds aligned with their goals. If you are investing for a shorter-term goal, you might check your account quarterly or annually and adjust as needed.

Frequently Asked Questions

Can I buy mutual funds directly from the fund company without a brokerage?

Some fund companies like Vanguard and Fidelity let you buy their own funds directly, but you still need to open an account with them — they function as both the fund company and the brokerage. For funds from other companies, you need a brokerage. Using a brokerage gives you access to thousands of funds in one place, so most people find it simpler.

What is the difference between a mutual fund and an ETF?

Both are baskets of securities, but ETFs trade like stocks throughout the day at changing prices, while mutual funds price once daily after the market closes. ETFs often have lower expense ratios and are more tax-efficient in taxable accounts. For beginners, mutual funds are simpler because you do not have to time your purchase, but ETFs are a good option once you understand the difference.

How much money do I need to start?

The minimum depends on the fund and brokerage. Many brokerages have no account minimum, but individual funds often require $500 to $3,000 for the first purchase. Some funds and brokerages have no minimum at all. If you have less than the minimum, you can start with a fund that has no minimum, or wait until you have saved enough.

Do I pay taxes on mutual fund gains while I hold them?

In a taxable brokerage account, yes — you owe tax on dividends and capital gains distributions each year, even if you do not sell. In a retirement account like an IRA, you do not pay tax until you withdraw money. This is one reason retirement accounts are popular for long-term investing.

Can I lose all my money investing in mutual funds?

Mutual funds can lose value if the securities inside them decline, but they are diversified across many holdings, so a complete loss is rare unless the fund invests in very risky assets. Bond funds are generally less volatile than stock funds. Read the fund's prospectus to understand what it invests in and how much risk it carries.