You buy mutual funds through a brokerage account, not directly from the fund company

A brokerage is a company that holds your money and executes trades on your behalf. You open an account there, deposit cash, and use their platform to purchase mutual fund shares. The brokerage does not manage the fund itself — that is the job of the fund company (like Vanguard or Fidelity). The brokerage is the middleman that lets you buy and sell.

You cannot walk into a mutual fund company's office and hand them money. Instead, you choose a brokerage, open an account, and buy the funds they offer. Most major brokerages offer thousands of mutual funds from dozens of fund companies, so you have real choice about which funds to purchase once you have picked your brokerage.

The brokerage holds your account, sends you statements, and handles the paperwork. If you sell shares later, the brokerage processes that sale and deposits the proceeds back into your account. Some brokerages charge trading fees per transaction; others charge none. Some charge annual account fees; many do not.

Key Takeaways

  • Open a brokerage account with a company like Fidelity, Vanguard, Charles Schwab, or E*TRADE, then buy mutual funds through that account.
  • You will need to provide your Social Security number, proof of address, and banking information to open an account.
  • Taxable brokerage accounts have no contribution limits, but tax-advantaged accounts like IRAs and 401(k)s have annual caps and withdrawal rules.
  • Most brokerages let you set up automatic monthly investments, which removes the need to time the market or remember to buy.
  • Trading fees and account fees vary widely — some brokerages charge nothing, while others charge per transaction or per year.

Types of accounts: taxable, IRA, and employer plans

A taxable brokerage account is the simplest. You deposit money, buy mutual funds, and pay taxes on any gains or dividends when you sell or receive distributions. There is no contribution limit — you can invest as much as you want in a given year. You can withdraw money anytime without penalty. The tradeoff is that you owe taxes on the profits.

An IRA (Individual Retirement Account) lets you invest with tax advantages. You can contribute up to $7,000 per year (or $8,000 if you are 50 or older). In a Traditional IRA, contributions may be tax-deductible, and you pay taxes only when you withdraw in retirement. In a Roth IRA, you contribute after-tax dollars, but withdrawals in retirement are tax-free. Both types penalize you if you withdraw before age 59½, with limited exceptions.

A 401(k) is an employer-sponsored plan. Your employer may offer one; you enroll through your workplace. Contributions come directly from your paycheck, and the 2024 limit is $23,500 per year (or $31,000 if you are 50 or older). Many employers match a portion of what you contribute — that is assistance programs. You choose from a menu of mutual funds (and other investments) that your employer's plan offers. Withdrawals before age 59½ usually trigger a 10% penalty plus income tax.

How to open a brokerage account

Choose a brokerage first. Common choices include Fidelity, Vanguard, Charles Schwab, E*TRADE, and TD Ameritrade. Each offers mutual funds, though the specific funds available and the fees charged differ. Many people choose based on reputation, customer service, or whether they already bank there.

Go to the brokerage's website and click the button to open an account. You will answer questions about your name, address, date of birth, Social Security number, employment status, and investment experience. This is standard Know Your Customer (KYC) compliance — the brokerage is required by law to collect this information.

You will also choose what type of account to open: taxable, Traditional IRA, Roth IRA, or another type. If your employer offers a 401(k), you enroll through your employer's benefits portal, not through a brokerage website — your employer chooses the brokerage that runs the plan.

After you submit your information, the brokerage verifies your identity and approves your account, usually within one business day. You then link a bank account so you can transfer money in. Once the transfer clears (typically two to three business days), you can buy mutual funds.

Finding and buying specific mutual funds

Once your account is open and funded, log into the brokerage platform. Search for the mutual fund by its ticker symbol (a four- or five-letter code like VTSAX or FSKAX) or by name. The platform will show you the fund's price, recent performance, expense ratio, and other details.

Click "Buy" or "Invest" and enter the dollar amount you want to invest or the number of shares you want to purchase. The brokerage will show you the current price per share and calculate how many shares your money will buy. Review the order and confirm it. The trade executes immediately (or at the next market close if you place it after hours).

You can also set up automatic investments. Tell the brokerage to transfer a fixed amount from your bank account every month and automatically buy a specific mutual fund. This removes the need to remember to invest or to worry about timing the market. Many people invest $100 to $500 per month this way.

Fees and costs to watch

The expense ratio is the annual cost of owning a mutual fund, expressed as a percentage. A fund with a 0.05% expense ratio costs $5 per year for every $10,000 invested. A fund with a 1% expense ratio costs $100 per year on the same $10,000. Over decades, this difference compounds significantly. Index funds and exchange-traded funds (ETFs) typically have lower expense ratios than actively managed funds.

Some brokerages charge trading fees — a flat fee per transaction, like $5 or $10 per mutual fund purchase. Others charge no trading fees at all. Ask the brokerage about this before you open an account, or check their fee schedule online.

Some brokerages charge account maintenance fees if your balance falls below a minimum (often $2,500 or $10,000) or if you do not meet other conditions. Many waive this fee if you set up automatic monthly investments or if you have a certain account balance.

When you sell a mutual fund at a profit, you owe capital gains tax (in a taxable account). If you held the fund for more than one year, you pay the long-term rate, which is usually lower than the short-term rate. This is not a fee charged by the brokerage — it is a tax owed to the government — but it is a real cost to understand.

Employer 401(k) plans and how they differ

If your employer offers a 401(k), you enroll through your company's benefits website or HR department, not through a brokerage. Your employer has already chosen a brokerage or plan administrator (like Fidelity or Vanguard) to run the plan. You will have access only to the mutual funds and other investments that your employer's plan includes — you cannot buy any fund you want.

Contributions come directly from your paycheck before taxes are withheld, which reduces your taxable income for the year. If your employer offers a match — for example, 50% of the first 6% you contribute — that is immediate assistance programs. Many people contribute just enough to capture the full match, then invest additional money in an IRA or taxable account.

You cannot withdraw from a 401(k) before age 59½ without a 10% penalty, with a few exceptions (hardship withdrawal, loan, separation from service). This makes a 401(k) less flexible than a taxable brokerage account, but the tax advantages and employer match usually make it worth it.

Frequently Asked Questions

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

Some fund companies let you buy directly, but it is rare and usually requires a large initial investment ($2,500 to $10,000 or more). Using a brokerage is simpler, cheaper, and gives you access to funds from many companies in one place. Almost all investors use a brokerage.

What is the minimum amount I need to invest to get your free guide?

Most brokerages have no account minimum. Some mutual funds have a minimum first investment of $1,000 or $3,000, but many have no minimum at all. If you set up automatic monthly investments, many funds waive the minimum. Check the specific fund's prospectus or the brokerage's website for details.

Should I open a taxable account or an IRA?

If your employer offers a 401(k) with a match, contribute enough to capture it first — that is assistance programs. Then max out an IRA if you can ($7,000 per year). After that, use a taxable brokerage account. This order prioritizes tax-advantaged space and employer matching.

Can I move mutual funds between brokerages?

Yes. You can transfer shares in-kind (move the actual shares) or sell them and move the cash. In-kind transfers avoid triggering a taxable sale, but they take longer and may have a small fee. Contact your new brokerage to start the transfer process.

What happens if the brokerage goes out of business?

Your account is protected by SIPC (Securities Investor Protection Corporation) up to $500,000 per account. This covers the value of your investments if the brokerage fails. Your mutual funds themselves are held in your name, so they are yours regardless of what happens to the brokerage.