You need a brokerage account before you can buy mutual funds

A mutual fund is not something you buy directly from the fund company in most cases. You buy it through a brokerage account — a financial account that holds your money and lets you place trades. The brokerage is the intermediary between you and the fund. You deposit cash into the brokerage account, then use that cash to purchase mutual fund shares.

The brokerage can be a traditional bank, an online broker like Fidelity or Charles Schwab, a robo-advisor like Betterment, or an investment app. Each charges different fees and offers different fund selections. Some brokerages let you buy mutual funds with no transaction fee; others charge per trade. The account itself is free to open at most brokerages, though some have minimum deposit requirements that range from zero to several thousand dollars.

You will need to provide your Social Security number, proof of identity, and your bank account information to link funding. The account opening process takes 10 to 15 minutes online for most brokerages.

Key Takeaways

  • You open a brokerage account first, then use that account to buy mutual fund shares — you cannot buy directly from the fund company.
  • Most online brokerages charge no fee to open an account, though some require a minimum deposit of $500 to $2,500 before you can trade.
  • After your account is open and funded, you search for the mutual fund by its ticker symbol or name, select the number of shares you want, and place the order.
  • Mutual funds settle after one business day, meaning your shares appear in your account the next trading day and you can see their value change daily.
  • You can set up automatic monthly deposits to buy mutual fund shares on a schedule, which is called dollar-cost averaging.

Choose a brokerage based on fees, fund selection, and minimum deposit

Different brokerages offer different mutual fund selections and charge different costs. A brokerage that specializes in low-cost index funds (like Vanguard or Fidelity) may have thousands of mutual funds available with no transaction fees. A smaller online broker may have fewer funds but lower account minimums. A robo-advisor like Betterment or Wealthfront builds a portfolio of mutual funds for you automatically, but charges an annual advisory fee on top of the fund fees themselves.

The main costs to compare are: the account opening fee (usually zero), the minimum deposit to open (ranges from zero to $5,000), any transaction or trading fees per purchase, and the annual expense ratio of the funds themselves. The expense ratio is a percentage of your investment charged yearly by the fund company — a 0.05% ratio on a $10,000 investment costs $5 per year, while a 1% ratio costs $100 per year on the same amount.

If you already have a bank account or retirement account (like a 401(k) or IRA), check whether that institution offers mutual fund trading. Many banks let you buy mutual funds through their existing accounts without opening a separate brokerage.

Fund your account and place your first order

Once your brokerage account is open, you link a bank account and transfer money in. This transfer usually takes one to three business days. Some brokerages let you start trading immediately with a pending deposit; others require the money to settle first. Check your brokerage's policy before you plan to buy.

To buy a mutual fund, you log into your brokerage account and search for the fund by its name or ticker symbol — a four or five-letter code like VTSAX (Vanguard Total Stock Market Index Fund) or FSKAX (Fidelity Total Stock Market Index Fund). The brokerage shows you the fund's current price per share, its expense ratio, and its performance history. You enter the dollar amount you want to invest or the number of shares you want to buy, then place the order.

Most mutual fund orders placed during the trading day (before 4 p.m. Eastern time on a business day) execute at that day's closing price. Your shares settle the next business day, meaning they appear in your account and you can see their value. After that, the fund's value changes daily based on the performance of the stocks or bonds it holds.

Understand the difference between lump-sum and automatic investing

You can invest a large amount all at once (called a lump-sum investment) or set up automatic monthly or weekly transfers that buy mutual fund shares on a schedule. Automatic investing is called dollar-cost averaging because you invest the same dollar amount at regular intervals, which means you buy more shares when the price is low and fewer when the price is high.

Most brokerages let you set up automatic investments for free. You choose the fund, the amount, and the frequency (weekly, biweekly, or monthly), and the brokerage deducts that amount from your linked bank account and buys the fund on your chosen date. This removes the decision of when to invest and can reduce the stress of trying to time the market.

Neither approach is objectively better — lump-sum investing puts your money to work immediately, while dollar-cost averaging spreads your risk over time. The choice depends on whether you have a large sum available now or prefer to invest gradually.

Track your investment and understand what you own

After you buy mutual fund shares, your brokerage account shows your holdings, the number of shares you own, the current price per share, and your total investment value. Most brokerages update this information in real time during trading hours and show your gain or loss in dollars and as a percentage.

A mutual fund holds dozens or hundreds of individual stocks or bonds. When you own shares of the fund, you own a small piece of all those holdings. If the fund holds 500 stocks and you own 100 shares of the fund, you indirectly own a tiny fraction of all 500 stocks. The fund manager buys and sells those holdings, and you see the result in your fund's price movement.

You can view the fund's holdings, its top 10 positions, and its sector breakdown (how much is in technology, healthcare, finance, etc.) through your brokerage or the fund company's website. This information helps you understand what you actually own and whether it matches your investment goals.

Reinvest dividends or take them as cash

Many mutual funds pay dividends — distributions of cash from the fund's earnings — to shareholders. When a fund pays a dividend, your brokerage gives you the option to reinvest it (buy more shares of the same fund automatically) or take it as cash in your account.

Most investors choose to reinvest because it compounds your investment over time — the dividend buys more shares, those shares earn their own dividends, and the growth accelerates. You can change this setting anytime through your brokerage account. If you need the cash, you can elect to receive dividends as a deposit to your linked bank account instead.

Dividends are taxable in the year you receive them, even if you reinvest them. Your brokerage sends you a tax form (1099-DIV) at the end of the year showing all dividends paid, which you report on your tax return.

Know when and how to sell your mutual fund shares

Selling mutual fund shares works the same way as buying them. You log into your brokerage, find the fund in your holdings, enter the number of shares or dollar amount you want to sell, and place the order. The sale executes at that day's closing price and settles the next business day, with cash appearing in your account.

You can sell partial holdings (keep some shares and sell others) or sell everything at once. There is no penalty for selling mutual funds — you can buy and sell as often as you want. However, if you sell within a short time of buying (usually less than 30 days), some funds charge a redemption fee to discourage frequent trading. Check your fund's prospectus for this policy.

When you sell, you may owe capital gains tax on any profit. If you held the fund for more than one year, the gain is taxed at the long-term capital gains rate, which is usually lower than your regular income tax rate. If you held it for one year or less, it is taxed as ordinary income. Your brokerage tracks your cost basis (what you paid) and calculates the gain automatically.

Frequently Asked Questions

Do I need a lot of money to start investing in mutual funds?

No. Many brokerages have no minimum deposit, and you can start with as little as $1 or $100. Some brokerages require a minimum of $500 to $2,500 to open an account, but this is the exception. Once your account is open, you can invest any amount you choose.

Can I buy mutual funds through my employer's 401(k)?

Yes. Most 401(k) plans offer a selection of mutual funds as investment options. You choose which funds to invest your contributions in, and the money is deducted from your paycheck before taxes. This is often the easiest way to start investing in mutual funds if your employer offers a 401(k).

What happens if the mutual fund company goes out of business?

Your shares are still yours. If a fund closes, the company liquidates it (sells all holdings) and sends you the cash proceeds. Your money is not lost. Mutual funds are regulated by the SEC, and fund companies must follow strict rules for protecting investor assets.

How often should I check my mutual fund account?

You can check as often as you want, but most investors benefit from checking quarterly or annually rather than daily. Frequent checking can lead to emotional decisions based on short-term price swings. If you are investing for retirement or long-term goals, checking once or twice a year is usually enough.

Can I lose money investing in mutual funds?

Yes. Mutual fund values go up and down based on the performance of the stocks or bonds they hold. If the market declines, your fund value may decline too. However, if you invest for a long time horizon (10+ years) and stay invested through market downturns, historical data shows that stock mutual funds have recovered and grown over time.