You need a brokerage account to buy mutual funds — you cannot buy them directly from the fund company

Opening a mutual fund account means opening a brokerage account first, then choosing which mutual funds to buy within it. The brokerage is the intermediary that holds your money and executes the trades. You pick the brokerage, fund the account with cash, and then select which mutual funds to purchase.

The process takes between a few minutes to a few days depending on how you fund the account. Most brokerages now let you open an account online in under 15 minutes, but they will verify your identity and may hold your deposit for a few business days before you can trade.

Key Takeaways

  • You must open a brokerage account before you can buy mutual funds; the fund company itself does not sell directly to individual investors in most cases.
  • Choose between a taxable brokerage account, an IRA, or a 401(k) depending on whether you want tax advantages now or in retirement.
  • Most brokerages require proof of identity, a Social Security number, and a funding method (bank account or wire transfer).
  • After your account is funded and verified, you search for the mutual fund by name or ticker symbol and place a buy order just like a stock trade.
  • Mutual funds settle at the end of the trading day, so your order price depends on the fund's closing value that day, not the price you see when you place the order.

Step 1: Choose what type of account you need

Decide whether you want a regular taxable brokerage account, a retirement account like an IRA, or access through an employer 401(k). A taxable account has no contribution limits and no restrictions on when you withdraw money, but you pay taxes on dividends and gains each year. An IRA lets you contribute up to $7,000 per year (or $8,000 if you are 50 or older as of 2024) and delays taxes until you withdraw in retirement. A 401(k) is only available through your employer and usually offers matching contributions.

If you are saving for retirement and do not have a 401(k), an IRA is usually the better choice because of the tax deferral. If you are saving for something sooner than retirement, or you already maxed out an IRA, use a taxable account.

Step 2: Pick a brokerage and open the account

Common brokerages that offer mutual funds include Fidelity, Vanguard, Charles Schwab, E*TRADE, and Merrill Edge. Each charges different fees and offers different fund selections, so compare their mutual fund expense ratios and minimum investments before you choose. Many brokerages have no account minimum anymore, though some mutual funds themselves have minimums of $500 to $3,000.

Go to the brokerage website and click the button to open a new account. You will enter your name, address, Social Security number, date of birth, and employment information. The brokerage will ask whether you want a taxable account or an IRA. This takes about 10 to 15 minutes. You will receive a confirmation email with your account number.

Step 3: Verify your identity and fund the account

The brokerage will verify your identity using information from credit bureaus and public records. This is automatic and usually happens within minutes. Some brokerages may ask you to confirm a small deposit they make to your bank account, or to upload a photo of your driver's license.

Once verified, link your bank account or wire money to the brokerage. Linking a bank account is free but takes one to three business days. A wire transfer is faster (same day or next day) but usually costs $10 to $25. Do not place any trades until the money has settled in your brokerage account — if you trade before the deposit clears, the brokerage may reverse the trade or charge you a fee.

Step 4: Search for the mutual fund you want to buy

Log into your brokerage account and look for the "Buy" or "Trade" section. Search for the mutual fund by its name or ticker symbol. For example, the Vanguard Total Stock Market Index Fund has the ticker VTSAX. The brokerage will show you the fund's current price, expense ratio, and minimum investment. Read the fund's prospectus (a document the fund company publishes that explains what the fund owns and how it charges fees) if you want details about its holdings and strategy.

Some brokerages charge transaction fees to buy certain mutual funds, while others offer commission-free trading on their own funds or a large selection of partner funds. Check whether there is a fee before you buy.

Step 5: Place your order and confirm the trade

Enter the dollar amount or number of shares you want to buy. The brokerage will show you an order summary. Mutual funds do not trade during the day like stocks do — they settle once per day after the market closes at 4 p.m. Eastern time. Your order will execute at that day's closing price, which you will not know until after you place the order. Confirm the trade, and the brokerage will deduct the money from your account and add the mutual fund shares.

You will receive a confirmation email with the trade details, including the number of shares you bought and the price per share. Keep this for your records and for taxes.

What happens after you buy

Your mutual fund shares will appear in your account the next business day. You can hold them, buy more, or sell them whenever you want (though selling in a taxable account may trigger capital gains taxes). Most mutual funds pay dividends quarterly or annually, and you can choose to reinvest those dividends automatically or take them as cash. Check your brokerage account settings to set your dividend preference.

You will receive a statement each month showing your holdings, their current value, and any transactions. The brokerage will also send you tax documents at the end of the year if you held the fund in a taxable account.

Frequently Asked Questions

Do I have to buy mutual funds through the fund company?

No. You can buy most mutual funds through any brokerage. Buying through a brokerage is usually easier and faster than going directly to the fund company, and many brokerages offer commission-free trading on a wide selection of funds.

What if the mutual fund has a minimum investment and I have less money?

Some funds waive the minimum if you set up automatic monthly contributions, or if you open an IRA instead of a taxable account. Call the fund company or check its prospectus for the exact rules. If the minimum is too high, look for a similar fund with a lower minimum or choose an exchange-traded fund (ETF) instead, which trades like a stock and has no minimum.

Can I change my mind after I place an order?

Not before the order settles. Once you place an order for a mutual fund, it executes at that day's closing price and cannot be cancelled. After it settles, you can sell the shares, but you may owe capital gains taxes if the fund has gone up in value.

Will I owe taxes on mutual funds right away?

In a taxable account, yes — you owe taxes on dividends and capital gains each year, even if you do not sell. In an IRA or 401(k), no — taxes are deferred until you withdraw the money in retirement. This is one reason retirement accounts are better for long-term investing.

What if I want to buy mutual funds through my employer's 401(k)?

Your employer will provide a plan document and a list of available funds. You enroll through your company's benefits portal, choose how much to contribute from each paycheck, and select which funds to buy. The process is similar to opening a brokerage account, but your employer handles the account setup.