When buying no-load mutual funds, do yourself a favor. Simplify your life by dealing with one of two discount brokerage firms: Charles Schwab or Fidelity Investments. You pay nothing extra and gain a lot in convenience and simplicity.
Traditionally, no-load funds are bought directly from their sponsors. Their 800 numbers are widely publicized in newspapers and magazines. You just telephone for a prospectus and send in your check.
At Schwab and Fidelity, there’s an intervening step. You first have to open a brokerage account. But that’s no big deal. Once you have the account, here are three advantages of using it to buy no-load funds:
– You can buy funds from many different sponsors, all through the same account. Schwab’s Mutual Fund OneSource offers 225 funds from 25 no-load fund families, including Invesco, Janus, Neuberger & Berman, Benham, Strong and Twentieth Century. Fidelity’s FundsNetwork offers 195 funds from 10 families including all the no-load Fidelity funds (Fidelity’s low-loads, such as Magellan, aren’t in the program, however).
– Your transactions and fund performance are all reported on a single monthly statement. So you don’t have to deal with multiple statements from multiple fund groups. This is tremendously liberating. Many investors limit themselves to the funds in a single no-load fund group, solely to cut down on paperwork.
– You can sell shares with a phone call and put the proceeds into your discount brokerage account. Many mutual-fund sponsors also let you sell by phone and transfer the proceeds into a money-market fund, but others require signature guarantees before they’ll accept an order to sell.
Schwab and Fidelity also offer automatic monthly investment plans, send any prospectuses you request, forward your fund’s periodic financial reports and answer questions about funds you’re interested in. Fidelity sells reports on individual funds prepared by Lipper Analytical Services. Cost: $4.95. Schwab publishes a free, quarterly Select List of high-performing stock and bond funds; it also mails you your fund’s newsletters as well as its financial reports.
But neither Fidelity or Schwab gives advice on which fund to pick. Advice is the province of stockbrokers or financial planners.
For a free list of which fund groups these two discounters offer, and information on how to open an account, call Schwab at 800-2NO-LOAD or Fidelity at 800-544-9697. You can also use your account to buy stocks and bonds, no-load funds that aren’t in the no-fee program and load funds that charge sales commissions.
Neither of these programs is right for constant traders, however. They both charge transaction fees if you sell a fund’s shares more than four times over a 12-month period.
If you don’t pay to maintain your no-load-fund brokerage account, who does? The funds themselves. They pay Schwab or Fidelity 0.25 percent annually of the assets in your account. Schwab says that it saves the funds money by handling your paperwork, so there’s no reason for that cost to be passed on to you. Still, keep an eye on the annual fees your fund charges; they’re disclosed in the prospectus.
Some funds aren’t included
Some big no-load families, including Vanguard, Scudder and T. Rowe Price, aren’t available through these programs because they don’t want to pay the fee. If you like these funds, however, and want them reported along with your other funds on a single statement, you can buy them through a different Schwab or Fidelity program. Schwab will sell you almost any no-load fund for a 0.6 percent transaction fee. Fidelity’s charges on smaller trades run in the 0.8 to 0.9 percent range. Both discounters charge less for larger trades.
Some other discount brokers also accept orders for no-load funds but the terms aren’t as good. At Jack White & Co. in San Diego, for example, a transaction smaller than $5,000 costs $27. Muriel Siebert & Co. in New York and Los Angeles offers 185 funds from 10 families at no transaction fee, but the minimum investment is $5,000 per fund ($2,000 for individual retirement accounts) and you have to hold for one to nine months, depending on how much you invest.
One drawback to buying your no-loads through a broker: At present, they don’t offer regular withdrawal plans, where your fund sends you a check a month. Fidelity, however, hopes to have withdrawal plans by this fall.
