How to Buy Mutual Funds: A Step-by-Step Guide

You can buy mutual funds through a brokerage account, a retirement account, or directly from the fund company

The simplest route for most people is opening an account at a brokerage — a company that holds your money and executes trades. You fund the account with a deposit, search for the mutual fund you want by its ticker symbol or name, and place an order just as you would buy a stock. The fund company then issues you shares at that day's closing price, and those shares sit in your account until you sell them.

If you are buying through an employer retirement plan like a 401(k), the mutual funds are already listed as options within that plan. You choose which funds to invest in, and money from your paycheck goes directly into them. If you are opening an individual retirement account (IRA), you first open the IRA at a brokerage, then buy mutual funds inside it the same way you would in a regular account.

Some fund companies also let you buy directly from them without a brokerage middleman — Vanguard, Fidelity, and Schwab all offer this. The process is the same: you open an account, deposit money, and buy shares. The main difference is that you can only buy that company's own funds, whereas a brokerage gives you access to thousands of funds from many companies.

Key Takeaways

• Most people buy mutual funds through a brokerage account, which requires opening an account, depositing money, and placing an order for the fund by its ticker symbol.
• Employer retirement plans and IRAs offer mutual funds as investment options, and money you contribute goes directly into the funds you choose.
• You can buy directly from a fund company like Vanguard or Fidelity if you want only that company's funds, or use a brokerage to access funds from many companies.
• Mutual funds are priced once per day at market close, so your order executes at that day's price regardless of when during the day you place it.
• Most brokerages charge no commission to buy or sell mutual funds, though some funds charge an internal fee called an expense ratio.

Opening a brokerage account

A brokerage account is simply a container that holds your investments and cash. To open one, you visit a brokerage's website (Fidelity, Charles Schwab, E*TRADE, and Vanguard all offer brokerage accounts), provide your name, address, Social Security number, and employment information, and link a bank account for deposits and withdrawals. The whole process takes 10 to 15 minutes online.

You will be asked what type of account you want. A taxable brokerage account has no contribution limits and no restrictions on when you withdraw money, but you pay income tax on any gains when you sell. A Roth IRA lets you contribute up to $7,000 per year (as of 2024, though this amount can change), and withdrawals in retirement are tax-free. A traditional IRA lets you deduct contributions from your taxes now, but you pay tax on withdrawals later. Choose based on whether you want tax breaks now or in retirement, and whether you need access to the money before age 59½.

Once your account is open and funded, you are ready to buy. You do not need to do anything else — no paperwork, no waiting period.

Finding and buying the fund you want

Every mutual fund has a ticker symbol — a short code like VTSAX (Vanguard Total Stock Market Index Fund) or FSKAX (Fidelity Total Stock Market Index Fund). You search for this symbol in your brokerage's search box, and the fund's page appears with its current price, holdings, expense ratio, and performance history.

Click "buy" or "invest", enter the dollar amount you want to spend or the number of shares you want, and confirm the order. Your order will execute at that day's closing price — the price set at 4 p.m. Eastern time when the stock market closes. If you place an order at 10 a.m., it still executes at 4 p.m. that day. If you place it after 4 p.m., it executes at the next day's closing price.

Within one to three business days, the shares appear in your account and you own them. You can hold them as long as you want, or sell them anytime the market is open. When you sell, you get cash back into your account at that day's closing price.

Understanding costs before you buy

Most brokerages charge zero commission to buy or sell a mutual fund — you will not see a separate fee on your statement. However, every mutual fund charges an expense ratio, which is an annual percentage fee taken from the fund's assets to pay for management, administration, and other costs.

A fund's expense ratio appears on its fact sheet as a percentage — for example, 0.03% or 0.50%. This fee is deducted automatically from the fund's value each day, so you never write a check for it, but it reduces your returns. A fund with a 0.03% expense ratio costs $3 per year for every $10,000 you invest. A fund with 0.50% costs $50 per year on the same $10,000. Over decades, this difference compounds significantly.

Some funds also charge a sales load, which is a one-time commission paid when you buy or sell. This typically ranges from 2% to 6% of your investment. Many brokerages offer a selection of no-load funds (funds with no sales load), so you can avoid this fee entirely by choosing carefully.

Buying through an employer retirement plan

If your employer offers a 401(k), 403(b), or similar plan, mutual funds are usually the only investment option available. You enroll through your employer's benefits portal, choose how much of your paycheck to contribute, and select which funds to invest in from the plan's menu. Your contributions go directly into those funds before taxes are taken out (in a traditional plan) or after taxes (in a Roth plan).

You do not buy or sell these funds the way you would in a brokerage account. Instead, you change your contribution allocation or rebalance your existing holdings through the plan's website or app. Buying and selling happens behind the scenes — the plan administrator handles the transactions.

One major advantage: many employers match a portion of your contributions, which is assistance programs. If your employer offers a match, contribute at least enough to capture it before investing elsewhere.

Buying through an IRA

An IRA is a retirement account you open yourself, not through an employer. You can open one at any brokerage, and the process is the same as opening a regular brokerage account — you provide your information, link a bank account, and choose between a Roth IRA or traditional IRA.

Once your IRA is open, you deposit money and buy mutual funds inside it exactly as you would in a taxable brokerage account. The difference is that the money grows tax-free (in a Roth) or tax-deferred (in a traditional IRA), and you cannot withdraw it before age 59½ without paying a penalty — with limited exceptions like first-time home purchases or medical hardship.

For 2024, you can contribute up to $7,000 per year to an IRA if you are under 50, or $8,000 if you are 50 or older. These limits change annually. You can contribute to both an employer plan and an IRA in the same year, though there are income limits on deducting traditional IRA contributions if you also have a workplace plan.

Buying directly from a fund company

Vanguard, Fidelity, Schwab, and other large fund companies let you open an account directly with them and buy their own mutual funds without using a separate brokerage. The process is nearly identical to opening a brokerage account: you provide your information, link a bank account, and place orders for the funds you want.

The main limitation is that you can only buy that company's funds. If you want to own Vanguard funds and Fidelity funds in the same account, you would need to use a brokerage that carries both. However, if you are comfortable sticking with one company's offerings, buying directly can simplify things — you have one login, one statement, and one customer service line.

Direct accounts also offer the same IRAs and retirement accounts as brokerages, so you can still get tax advantages. The buying process and costs are identical to buying through a brokerage.

What happens after you buy

Once you own mutual fund shares, you receive a confirmation statement showing the number of shares, the price per share, and the total amount invested. You do not receive physical certificates — everything is electronic.

Your fund will distribute dividends and capital gains to you, usually once or twice per year. In a taxable account, you owe tax on these distributions even if you do not sell the fund. In an IRA or 401(k), distributions are tax-deferred or tax-free depending on the account type. You can choose to reinvest distributions automatically (buy more shares with the payout) or receive them as cash.

You can check your balance anytime by logging into your account. You can sell some or all of your shares whenever you want during market hours, and the cash will appear in your account within one to three business days.

Frequently Asked Questions

Can I buy a mutual fund with just $100?

Yes. Most brokerages have no minimum investment amount, so you can start with whatever you can afford. Some funds themselves have minimums (often $1,000 or $3,000 for the first purchase), but many index funds and ETFs have no minimum. Check the fund's fact sheet before you buy.

Do I have to buy a whole number of shares?

No. You can buy fractional shares — for example, 12.5 shares — by specifying a dollar amount instead of a share count. Nearly all brokerages now offer this, so you can invest any amount without worrying about the share price.

What is the difference between buying a mutual fund and buying an ETF?

The main difference is pricing. Mutual funds are priced once per day at market close, while ETFs trade throughout the day like stocks and their price changes minute to minute. Both are bought the same way through a brokerage, and most brokerages charge no commission for either. ETFs typically have lower expense ratios than mutual funds tracking the same index.

Can I set up automatic investments in a mutual fund?

Yes. Most brokerages let you set up automatic monthly or weekly transfers from your bank account, which then automatically buy a specific mutual fund. This is called dollar-cost averaging and can help you invest consistently without thinking about it.

What if I want to change my mind after I buy?

You can sell anytime the market is open. Your order executes at that day's closing price, and the cash appears in your account within one to three business days. If you sell at a loss, you can use that loss to offset other gains for tax purposes. If you sell at a gain in a taxable account, you owe tax on the profit.