What do investors need to know before buying a mutual fund? First, it’s the knowledge about which asset classes and sectors to invest in for maximum return and diversification. What is important is to diversify well among countries, asset classes, and sectors.  Also, understanding that mutual funds are not short-term investments is necessary. Mutual funds are not designed for day trades. 

Second, choosing a well-performing fund makes a big difference. Even an extra percent of return compounded over many years can earn lots of extra cash. Third, mutual funds have varying initial investment requirements. For example, a fund may require a minimum of $1,000 when investing for the first time. Then, there are subsequent minimums required for additional investments in the fund such as $100.

However, many funds will have lower minimums for Individual Retirement Accounts (IRAs) or pension investments. For example, a fund may ask for only $500 as an initial investment in an IRA account (versus $1,000 for a regular account), and $50 as the minimum for additional contributions. These requirements differ among companies, so once you find a mutual fund that you like, check the fund’s policy. Finally, comparing fees (and loads) among funds is important as these can affect returns substantially. This is more like shopping around for the best deal (the lowest expenses).

This whole section as well as related articles here are a guide to better understanding of mutual funds. 


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Whether you're a U.S.-based investor or are buying mutual funds abroad, similar principles apply

Things to Know Before Investing in Mutual Funds

There are several things you need to know before you choose a fund. These include investment style, performance, fees, and investment minimums.