Low Minimum Equity Mutual Funds

By Troy Pryczek


In essence, mutual funds were created to work for the small or conservative investor. But while most banks will open an interest bearing checking or savings account with $100 and you can get a Certificate of Deposit for under $1000 at about double the interest rate of the above account, it is extremely difficult to find a mutual fund that will be open to investors with smaller amounts to investors.
So are small investors stuck with low interest rates or savings bonds as the only reasonable way to invest? As it turns out, there are still a few mutual fund companies that will let investors into the fund for as little as $100 a month or, in some cases, even less.
Consider this. If a mutual fund lets an investor in with a $100 account and charges the average of 0.8% per year, that fund will collect less than $1 in fees from that investor. Now consider the funds costs of mailing quarterly statements and annual reports, the fund can easily lose money on these smaller investors. In really, it is difficult for any fund to turn a profit on an account of less that $500 or more.
Some funds, like Vanguard, take proactive steps to keep a low expense ratio, just to give the smaller investor a chance. Vanguard is the United States largest stock fund and it charges investors only 0.18% a year for an unmanaged fund. Vanguard also charges a $10 fee on taxable accounts that carry less than a $10,000 balance. Even with this charge an investor who carries a balance of $5,000 will pay Vanguard only $12.70 a year.
Vanguard isn't the only fund to start charging smaller investors fees. American Century charges $25 a year and Fidelity $12 a year for any account with a balance of less than $10,000. Other funds are even higher on both the fees charged and the annual fees. Some fund companies will waive fees for customers that deal online. Online trading cuts up front expenses such as mailing and management, so the company can pass those savings over to the investor.
Mutual funds are in business to make money. While generating profits for investors it is not unreasonable that the company show a decent profit. Many companies believe that the costs of allowing smaller investors in outweighs any benefits and have increased initial investment requirements to hedge out the little guys out there. A few companies have even done away with programs that they had designed specifically for small investors.
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