How to Develop a Mutual Fund
- 1). Understand what you're getting into. A mutual fund is an investment vehicle that can be compared to a basket of stocks. You and many other investors pool your money to buy a portion of everything that's in the basket, which has been assembled with an eye toward meeting certain investment goals. A portfolio manager will choose the stocks in the fund and make other investments decisions regarding each mutual fund. Working with a portfolio manager will help you to pick the right mutual fund for you and your budget.
- 2). Decide what your financial goals are and what fund would be right for you. Are your goals short-term or long-term? You need to decide that before you start investing. Most of the time, when you first start investing, you might want to do it for a short-term goal until you really understand how everything works. Mutual funds are divided into four large groups: growth funds, balanced funds, income or bond funds, and money market funds. These are the different funds you can invest in to fit your needs and your budget. For a first time investor, it is suggested that you choose a money market mutual fund.
- 3). Invest in a money market mutual fund. A money market mutual fund can be a short-term storage place for emergency assets or rainy day money, as well as a partial foundation for a long- term investment portfolio. A money market mutual fund is a large pool of investor money, which can only be invested in short-term money securities, such as Treasury bills, corporate IOUs and other types of short-term debt securities. This fund is a risk-free money storage and a good investment for those who do not have the time to study and learn all the ins and outs of investing. It is also a fund that can fit anyone who is on a budget, but wants to start investing to make some type of return back on their money. You need to look for a company that will let you invest a minimum amount.
- 4). Research different mutual fund companies to see which ones will let you invest with a minimum amount of $50 to $100. One of these companies is T. Rowe Price, which has an automatic asset builder fund that you can start off with for $50 per month (it will be deducted from your checking account). You can invest conservatively with them by investing that amount in a money market mutual fund. Money market funds are probably the safest, most stable of mutual funds, and in many instances they pay returns that are one to two percentage points better than you would receive in a banking savings account (see Resources below).
- 5). Decide which company to invest in. Do your research and make sure that the mutual fund matches your financial goals. Do not make a decision with the first mutual fund company you contact. Don't let the fact that you don't have a lot of money keep you from investing and building a portfolio. If you have to save $12.50 per week to invest into a $50 mutual fund once a month, set your budget up for that. That way you will not be taking $50 at one time to invest, and you will accomplish your goal for saving every month with a mutual fund that will allow you to have an investment with minimal risk.
