You buy mutual funds through a brokerage account by choosing a fund, placing an order, and letting the fund company hold your shares

Buying a mutual fund is simpler than buying individual stocks because you are buying a single investment that holds many stocks or bonds inside it. You open an account at a brokerage firm (online or through a bank), find the mutual fund you want, enter the fund's ticker symbol, decide how much money to invest, and submit your order. The fund company then buys your shares and holds them in your account. You do not pick the individual stocks — the fund's manager does that for you.

The whole process takes minutes online, though the trade itself settles (officially completes) within one to three business days. You can buy mutual funds in a regular taxable brokerage account, a retirement account like an IRA, or a 401(k) if your employer's plan offers them.

Key Takeaways

  • You need a brokerage account open before you can buy any mutual fund, whether that account is at a bank, an online broker, or your employer's 401(k) plan.
  • Most mutual funds have a minimum investment amount — often $500 to $3,000 for the first purchase — though some brokerages waive this if you set up automatic monthly deposits.
  • You can buy mutual funds during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays) and your order will execute at that day's closing price, not the price you see on your screen.
  • Mutual funds charge annual fees called expense ratios, which are deducted automatically from your account and range from under 0.1% to over 1% depending on the fund type.
  • You can sell your mutual fund shares anytime the market is open, and the money typically lands in your account within three business days.

Opening a Brokerage Account

Before you can buy any mutual fund, you need somewhere to hold it. A brokerage account is straightforward a container that holds your investments and lets you buy and sell them. You can open one at an online brokerage like Fidelity, Schwab, or Vanguard; at a traditional bank; or through your employer's 401(k) plan.

The account opening process is usually online and takes 10 to 15 minutes. You will provide your name, address, Social Security number, and employment information. The brokerage will ask what type of account you want: a regular taxable account (called a brokerage account), a traditional IRA, a Roth IRA, or a SEP IRA if you are self-employed. Each has different tax rules, so choose based on whether you want to save for retirement or for a shorter-term goal.

After you open the account, you need to fund it by transferring money from your bank. Most brokerages let you link your bank account and transfer electronically, which takes one to three business days. Some let you mail a check, though that is slower.

Finding and Researching the Fund You Want

Once your account is funded, you search for the mutual fund by its ticker symbol — a four-letter code like VTSAX (Vanguard Total Stock Market Index Fund) or FSKAX (Fidelity Total Stock Market Index Fund). You can find ticker symbols by searching the fund company's website or by typing the fund name into your brokerage's search box.

Before you buy, look at three things: the fund's expense ratio (the annual fee, shown as a percentage), its holdings (what stocks or bonds it owns), and its performance history (how it has done over the past 1, 5, and 10 years). The brokerage will show all of this on the fund's detail page. Pay most attention to the expense ratio — a difference of 0.5% per year adds up significantly over decades.

You can also read the fund's prospectus, which is a legal document that explains the fund's strategy, risks, and fees. It is dense, but the first few pages tell you what the fund invests in and what it costs.

Placing Your Order

Once you have chosen your fund, go to your brokerage account and search for the fund by ticker symbol. Click on it, and you will see a button that says "Buy" or "Invest". Enter the dollar amount you want to invest (not the number of shares — you enter dollars and the system calculates shares for you). Some funds have a minimum first investment, often $500 to $3,000, though many brokerages waive this if you commit to automatic monthly deposits of $50 or more.

Review your order one more time to make sure the fund name, dollar amount, and account type are correct. Then submit it. Your order will execute at the fund's closing price at the end of that trading day (4 p.m. Eastern time), not at the price you see on your screen right now. This is different from stocks, where you can see the exact price before you buy.

After you submit, your order status will show as "pending" until the market closes. The next business day, it will show as "complete" and you will own shares of the fund.

Understanding Fees and Costs

Every mutual fund charges an expense ratio, an annual fee that comes out of the fund's assets automatically. You do not write a check for it — it reduces your fund's value each year. Expense ratios range from under 0.1% per year for index funds (which straightforward track a market index like the S&P 500) to 1% or more per year for actively managed funds (where a manager picks stocks trying to beat the market).

Some funds also charge a sales load, which is a commission paid to the broker when you buy or sell. This can be 3% to 6% of your investment. Most online brokerages offer "no-load" funds that have no sales commission, so avoid load funds unless you have a specific reason.

You may also pay a transaction fee if you buy a fund outside your brokerage's "fund family" — for example, buying a Vanguard fund through Fidelity. Many brokerages now waive these fees, but check before you buy.

Timing Your Purchase and Market Hours

You can place a mutual fund order anytime — even at 2 a.m. on a Sunday — but it will only execute during market hours: 9:30 a.m. to 4 p.m. Eastern time on weekdays when the stock market is open. If you submit an order after 4 p.m. or on a weekend, it will execute at the next day's closing price.

Unlike stocks, you cannot choose the exact price at which your mutual fund order executes. All orders placed on the same day execute at that day's closing price, regardless of when during the day you submitted your order. This is set by law to may support fairness.

The trade settles (officially completes and the shares become yours) within one to three business days. During this time, the shares are in your account but marked as "unsettled". You can sell them before they settle, but most brokerages ask you not to.

Buying More Shares Later

After your first purchase, buying more shares is even simpler. You just go back to your account, search for the fund, and place another order. There is no minimum for additional purchases at most brokerages.

Many investors set up automatic investments, where the brokerage transfers a fixed amount from your bank account to the mutual fund on a set schedule — say, $200 every month. This is called dollar-cost averaging and removes the stress of trying to time the market. The money buys more shares when the price is low and fewer shares when the price is high, which over time can reduce your average cost per share.

You can change or cancel automatic investments anytime through your account settings.

Selling Your Mutual Fund Shares

When you want to sell, go to your account, find the fund, and click "Sell". Enter the dollar amount or the number of shares you want to sell. Your order executes at that day's closing price, just like a buy order. The money lands in your account within three business days, and you can then transfer it back to your bank or use it to buy something else.

Keep in mind that selling in a taxable account may trigger capital gains taxes if the fund's value has risen since you bought it. If you sell at a loss, you can use that loss to offset other gains. In a retirement account like an IRA or 401(k), you do not owe taxes when you sell, but you may owe penalties if you withdraw before age 59½.

Frequently Asked Questions

What is the minimum amount I need to invest in a mutual fund?

Most mutual funds require a minimum first investment of $500 to $3,000, though some have no minimum. Many brokerages waive the minimum if you set up automatic monthly deposits of $50 or more. Check the fund's detail page or call the brokerage to confirm.

Can I buy mutual funds through my employer's 401(k)?

Yes, most 401(k) plans offer a selection of mutual funds. You choose which funds to invest in when you enroll, and the money comes out of your paycheck automatically. The process is simpler than opening your own brokerage account because your employer handles the account setup.

What happens if I sell my mutual fund shares right after I buy them?

You can sell anytime the market is open. However, some funds charge a redemption fee if you sell within a short time (often 30 to 90 days), meant to discourage rapid trading. Check the fund's prospectus for this rule before you buy.

Do I have to buy whole shares, or can I buy partial shares?

Most brokerages now let you buy fractional shares, meaning you can invest any dollar amount and own a portion of a share. This makes it easier to invest small amounts or to set up automatic monthly investments.

How do I know if a mutual fund is right for me?

Consider your time horizon (how long until you need the money), your risk tolerance (how much you can handle the value going up and down), and your goals. Index funds that track the overall market are a straightforward starting point for most people. If you are unsure, consider speaking with a financial advisor.