One of the most attractive things about mutual funds is that they give the small investor a chance to invest and enjoy the kind of diversification that is so important in the stock market. But mutual funds still have minimum deposit requirements, and you need to make sure you have enough to invest before you send your money in.
Many mutual fund companies establish lower initial deposits for their funds if they will be held in an IRA account. If you want to start investing in mutual funds, setting up an IRA can be a good choice, since the minimum balance requirements are often much lower. For instance, a fund with a minimum investment requirement of $2,500 might only require you to put in $500 if you are funding an IRA.
In many cases you can establish an account with less than the normal initial investment if you agree to set up a recurring investment in that fund. For instance, if the fund normally has a minimum investment of $1,000, you might be able to start with as little as $250 if you agree to make a monthly deposit of at least $50. You can set up a transfer from your checking or savings account straight into the mutual fund, putting your savings on automatic and making it easier to invest.
Every mutual fund has its own initial investment requirement, so it pays to shop around, especially if you have limited funds to invest. The initial investment requirements can vary from fund to fund even within the same family, so take the time to review the fund literature carefully and make sure that you have enough money to start an account with the fund of your choice.
Watch Out for Expenses
As you shop for a mutual fund with a low initial investment, it is important to be aware of fees and expenses. Every mutual fund has an expense ratio, with the lowest cost funds charging less than 0.20 percent and the highest cost ones charging in excess of 3 percent. This can make an enormous difference in your return, especially over the long haul. If you are unable to find a low cost mutual fund with a low initial investment, it might be better to save your money until you have enough to invest in a fund with lower costs.