How Can You Buy Actively Managed Mutual Funds?

Actively managed mutual funds allow individuals to invest in a professionally managed, diversified portfolio of securities. A dedicated fund manager or team actively buys, sells, and holds investments, aiming to outperform a specific market benchmark. This hands-on approach seeks to generate returns exceeding those of passively managed funds, which mirror an index.

Investors consider actively managed funds for expert stock selection and market timing. The fund manager’s expertise and research are central to the strategy, offering professional oversight. These funds also provide diversification by pooling money from many investors to purchase a broad range of assets.

Choosing Where to Invest

Investors have several avenues for purchasing actively managed mutual funds, each with distinct advantages and disadvantages. The choice depends on an individual’s comfort with self-direction, need for personalized guidance, and desired fund access.

One common way is through online brokerage firms. These platforms allow investors to open and manage accounts digitally, providing access to a wide selection of funds from various families. Online brokerages often offer competitive pricing for self-service investors, with low or no commissions on mutual fund trades, though fund-specific fees still apply. They also provide tools and research resources.

Another option is to buy mutual funds directly from the mutual fund company. Many large fund providers allow investors to open accounts and purchase shares directly through their websites or customer service. This direct approach can offer access to proprietary funds not available on all brokerage platforms. However, it limits an investor to that company’s specific fund offerings, potentially restricting diversification.

Investors can also purchase actively managed mutual funds through financial advisors or planners. These professionals provide personalized advice, assess investment goals and risk tolerance, and construct comprehensive financial plans. Advisors may also offer ongoing portfolio management and rebalancing services. Their compensation models vary, including fee-only arrangements or commission-based models.

Key Considerations Before Investing

Before investing in an actively managed mutual fund, thoroughly evaluate several factors to align the investment with your financial objectives. This research helps ensure the chosen fund meets your specific needs and risk appetite.

Investment Goals and Risk Tolerance

First, understand your personal investment goals and risk tolerance. Objectives can range from saving for retirement or a child’s education to purchasing a home. Assess your comfort with investment volatility, as this determines the risk level you are willing to undertake for potential returns. This self-assessment guides fund selection.

Fund Prospectus Review

Reviewing the fund prospectus is essential. This document serves as the authoritative source of detailed information about the mutual fund. The Securities and Exchange Commission (SEC) requires mutual funds to provide prospectuses, outlining key elements in a standardized format. It is advisable to obtain and read both the summary prospectus, which offers a concise overview, and the statutory prospectus for more in-depth details.

The prospectus details the fund’s investment objective and strategy, describing what the fund aims to achieve, such as capital growth or income generation, and its approach. This section explains the types of assets the fund invests in and its general investment philosophy. Understanding the fund’s strategy helps determine if it aligns with your objectives and market outlook.

Fees and Expenses

Scrutinize the fees and expenses section, as these charges significantly impact overall returns. The expense ratio is the annual percentage of assets deducted from the fund to cover operational costs, including management, administrative, and marketing fees (12b-1 fees). This ratio is continuously deducted, meaning a higher expense ratio reduces your net return.

Sales loads are commissions paid to intermediaries for distributing fund shares. A front-end load is deducted from the initial investment at purchase. A back-end load, or contingent deferred sales charge (CDSC), is incurred when shares are sold, typically decreasing over time. Some funds may also have level loads, which are ongoing annual fees that compensate for distribution and shareholder services.

Past Performance

The prospectus provides past performance information, typically showing returns over one, five, and ten years compared to relevant benchmarks. While this data offers insight into historical trajectory, it is always accompanied by a disclaimer stating that “past performance does not guarantee future results.” This emphasizes that market conditions change, and previous success does not indicate future performance.

Fund Management Team

Information about the fund management team is also in the prospectus. This includes details about the portfolio manager(s), their experience, tenure, and investment philosophy. Evaluating the manager’s track record and stability can be a factor, as their decisions directly influence the fund’s performance.

Portfolio Holdings and Minimums

The prospectus outlines the fund’s portfolio holdings, indicating the types of assets and sectors the fund invests in. This helps investors understand the fund’s underlying composition and diversification. Minimum investment requirements are also specified, which can vary widely.

Steps to Purchase Actively Managed Mutual Funds

Once you have selected an investment platform and researched a specific actively managed mutual fund, the next phase involves acquiring fund shares. This process begins with establishing an investment account, funding it, and placing the purchase order.

Opening an Investment Account

The first step is opening an investment account with your chosen online brokerage firm or directly with a mutual fund company. This typically involves completing an application, providing personal identification details like a Social Security number and contact information. You will also need to select the account type, such as a taxable brokerage account or a tax-advantaged retirement account like an Individual Retirement Account (IRA). Finally, linking a bank account is necessary for funding future investments and withdrawing funds.

Funding Your Account

After the account is established, fund it. Common methods include electronic funds transfers (ACH), which usually take one to three business days. Wire transfers are generally faster, often completing the same day, but may incur higher fees. Mailing a check is also an option, though it is the slowest method. Your chosen funding method determines how quickly you can begin purchasing mutual fund shares.

Placing a Purchase Order

With funds available, you can place the purchase order for the desired actively managed mutual fund. This usually involves navigating the platform’s online portal or contacting a broker by phone. You will typically search for the fund by its ticker symbol or full name, then specify the amount of money to invest or the number of shares to purchase.

Understanding Trade Execution

It is important to understand how mutual fund trades are executed. Unlike stocks or exchange-traded funds (ETFs) that trade continuously, mutual funds are typically priced only once per day. The price, known as the Net Asset Value (NAV), is calculated after the market closes, usually around 4:00 PM Eastern Time. Orders placed before the fund’s daily cut-off time will be executed at that day’s closing NAV. Orders placed after the cut-off time will be executed at the next business day’s NAV.

Confirming and Monitoring

After placing the order, confirm the transaction through the online platform’s order history or transaction records. Access your account statements regularly to monitor holdings. Many mutual fund companies offer dividend reinvestment, where dividends or capital gains are automatically used to purchase additional shares, allowing for potential compounding of returns.