How to invest in mutual funds

1 min readLast updated December 5, 2023by Rachel Carey

Whether bundles of bonds, stocks, and other valuable assets, mutual funds are one of the most advantageous types of investments available - find out why.

Summary 

  • Mutual funds make investing in multiple assets at the same time easy. 

  • You do not own assets held by a mutual fund, but you do benefit from the interest. 

  • Many mutual funds allow you to transfer your investments within the fund. 

  • Mutual funds may make you eligible for capital gains, dividends, and interest income taxes. 

Mutual funds are popular investment models because they allow investors to buy into a variety of different assets simultaneously. This allows you to diversify your investment portfolio much faster than other models can provide.  

Some of the steps involved in investing in a mutual fund include research, opening a fund account, buying shares, and developing an exit plan should you need it at a later stage.  Learn more about the best mutual fund strategies and a few key steps to making them work for you.  

What is a mutual fund? 

A mutual fund is an investment fund that pools money from several investors to purchase securities. These securities could be stocks, bonds, property, commodities, index funds, or any type of tradable asset.  

As mutual funds are pooled for investment from multiple investors, individual investors do not directly own the assets held by the fund. However, they can share in the profits gained from the fund’s total holdings.  

Why invest in mutual funds?  

Mutual funds are an excellent option for investors who want to grow their wealth but need more initial capital to do so via traditional investment strategies. They are also ideal for investors who need more inclination to perform deep market research on each asset.  

However, the most appealing aspect of mutual fund investment is its capacity for simple, no-fuss diversification. The varied package allows for a much broader and more dynamic portfolio for both new and experienced investors to draw from.  

What are the best mutual funds to invest in? 

Investing in mutual funds shouldn't be a rushed decision. There are a few different types to consider, and investing in any of them should be done with a reasonable degree of strategy and foresight.  

Some of the best types of mutual funds to invest in include index funds, target date funds, money market funds, investment companies, and bond funds. However, the best fund overall depends on the investor’s goals. 

How to invest in mutual funds 

Investing in mutual funds is a fairly straightforward process, not unlike other standard investment processes. Here are six steps you can take toward a successful mutual fund investment.  

What is your main goal for investing in a mutual fund? 

The best way to start is to know where you stand and what you’re trying to work towards. Before you can move forward with your investment, determine what type of mutual fund you want to invest in as well as what kind of result you are looking for in the long term.  

Research all your options 

Investing without doing your research will leave you open to problems later down the line - the more you know, the better the decision that will be made.  

Find out what kind of mutual fund investments are available to you and whether you would like to choose an active or a passive type of investment. Active investments are managed by professional financers who trade and invest on your behalf, depending on which assets are most likely to beat the market.  

Passive mutual fund investments offer a more hands-off approach that requires fewer fees and a moderate level of experience with investing. This option is becoming increasingly popular among new investors.  

At this stage of the process, it can also be useful to use a mutual fund calculator to find out what your budget is and choose an option that best suits your current capital and needs.  

Open an investment account 

Next, you need to open your mutual fund investment account. There are quite a few options in this area.  

Some retirement plans from your workplace could already give you access to mutual funds, while others can be directly opened at a bank or the company that created the fund you are investing in.  

You can open a brokerage account to follow either an IRA, a taxable brokerage account, or an education savings account. Brokerage accounts hold financial securities on behalf of investors, while taxable varieties are subject to capital gains taxes.  

Education savings accounts are tax-advantaged investment accounts created to encourage education savings for books, tuition, or school uniforms.  

Start buying shares of mutual funds 

Once the previous steps are complete, it’s time to start buying shares. At this point in the process, your account has been created, and now you need to fill it up with assets as diverse as you like.  

The easiest way of investing in mutual funds is to buy shares from the company or organization that trades the fund itself. Minimum deposits vary depending on where you go, so make sure to keep abreast of set deposits.  

Plan for regular investments 

Mutual fund investments can be bought and sold interchangeably and often are, particularly when it comes to active investment plans. This can help keep your mutual fund growing and allow you to make adjustments as market rates and inflation impact the value of your assets.  

The best way to plan for regular investments is to hire a professional financial advisor. People in these roles can use their expertise and connections to make more profitable and current market-related moves.  

Work out your exit plan 

Mutual fund investments are meant to be sold at a later point, specifically for a profit. This is what makes them so attractive to investors around the world.  

If you’re not sure how to develop an exit plan that works for you, Unbiased can help you find a financial advisor who can assist you now and in the future. 

How can I monitor the performance of my mutual fund investment?  

You can track the performance of your mutual fund investments through regular updates provided by the fund company.  

You can also check financial news, investment websites, and brokerage platforms for updates on your fund's performance. 

Are mutual funds a good investment for retirement?  

Yes, mutual funds can be a good investment choice for retirement for a number of reasons.  

Not only does investing in mutual funds offer diversification and growth potential, but it also works well with retirement-focused mutual funds designed to align with long-term financial goals. If retirement is something you are working towards, mutual funds can be an excellent stimulant for growing wealth.  

What tax implications should I be aware of when investing in mutual funds? 

Mutual funds can generate capital gains, dividends, and interest income, which may have tax 

consequences. To be tax efficient, you will need to plan your mutual fund tax plan accordingly.  

Be aware of the tax implications pertinent to your particular investment and consider tax-efficient investment strategies before signing anything off.  

Can I switch from one mutual fund to another?  

Many mutual funds offer the option to switch or transfer investments within the same fund family. This is known as a “fund-to-fund” transfer. There may, however, be tax implications and transaction fees associated with such transfers. 

The bottom line 

Mutual fund investments are some of the most dynamic and lucrative investment types on the market. By quickly and effectively diversifying your assets, there is significant potential for wealth generation that simultaneously bolsters your investment portfolio.  

If you want further guidance around navigating mutual fund investments, a financial advisor can help you learn more and obtain expert advice. Unbiased can help you get matched with a financial advisor who understands your needs and develops a strategy that aligns with your personal goals.

Senior Content Writer

Rachel Carey

Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.