Buying Mutual Funds
- Read the prospectus
- Understand daily fund prices
- Understand the impact of capital gain and dividend distributions
- Purchase funds
Read the prospectus carefully
When you have narrowed your search to a short list of funds, read and consider the information in each mutual fund's prospectus carefully before you invest. The prospectus contains:
- Detailed information on how a fund invests (investment objective)
- Associated risks investing in the fund
- Purchase information
- Sales charge information
- Fees, expenses and other costs associated with buying, owning, and selling fund shares
Understand how to read daily fund prices
Shares of mutual funds are calculated daily after the close of the U.S. stock market. The dollar value of a single share is called the net asset value (NAV) price. The NAV price includes fees associated with managing and operating the fund, but does not include any associated sales charges. No-load funds are typically purchased at the NAV price.
NAV = (fund portfolio assets) – (fund portfolio liabilities) / (number of shares outstanding)
Share classes sold through a financial advisor, such as Class A shares, generally have a front-end sales charge or load, and are sold at the public offering price (POP).
POP = NAV + (sales charge)
Share Classes of Mutual Funds
Some mutual funds issue several classes of shares with different load structures. The sales structure for each class can vary from fund family to fund family. Be sure to check each prospectus for details on all fees that apply to a continued investment. Common types of share classes include:
Sales Charge or Load Structure
Waivers for Sales Charges
None, although a transaction fee may be charged by a brokerage firm at the time of purchase.
Generally lower annual fees than Class B and C Shares12b(1) fee must be less than 0.25%
Charged at time of purchase
Generally lower than other share classes
Breakpoint discounts available
Charged at time of redemption
Generally higher fees than Class A Shares
Generally convert to Class A shares after approximately eight years
Charged if redeemed during the first year
Generally highest annual fees
Generally no sales charges after the first year
- Make an investment of a qualifying amount
- Hold a certain-sized investment in the same fund or in other mutual funds of the same fund family — regardless of where these shares or held, or
- Commit to investing a qualifying amount in more mutual fund shares in the same fund family during a prearranged time period
* Immediate family members generally include your spouse and all minor children. Be sure to check the prospectus for the exact definition.
Breakpoint discounts may start at $50,000 for equity funds and $100,000 for bond funds, and the amount of the discount often increases with the size of your investment. Please read the prospectus carefully for details.
Understand the impact of capital gains and dividends affect the purchase price
The securities in a fund's portfolio distribute dividends and capital gains to the fund throughout the year. A fund typically distributes the capital gains and dividends to shareholders on annual, semi-annual or quarterly basis — these distributions are generally taxable to shareholders, if the fund is owned outside of a tax-deferred account.
When the fund distributes capital gains or dividends to shareholders, the fund's assets decrease by the amount distributed, and the NAV drops proportionally. When the fund's NAV drops you have not lost value, because you have received either a cash distribution or additional shares to equal the amount of the decrease in NAV. For example:
- You own 1,000 shares of a fund with an NAV of $10.50 for a total value of $10,500.
- The fund distributes a dividend of $0.50 per share and the NAV drops to $10.00.
- You now own 1000 shares at $10.00 a share for a total value of $10,000.
- And, you also have received either $500 as a distribution, or an additional 50 shares of the fund.
Keep in mind that whether you receive the dividends or capital gains as a distribution or as additional shares, the distribution is a taxable event unless you own that fund in a tax-deferred account, or, in some cases, if the fund is a municipal bond fund. Municipal bond funds, however, may be subject to state and local taxes, and also the federal alternative minimum tax (AMT).
Note: If you are looking to purchase a fund close to a distribution date, it may be wise to wait until after the dividend or capital gains distribution to avoid receiving an immediate distribution that is potentially a taxable event.
You may purchase funds through a financial advisor, through a brokerage account, directly from a fund company and often through your employer-sponsored retirement account.
Wells Fargo Advisors offers more than 8,000 mutual funds from well-known mutual fund families and over 800 No-Load No-Transaction Fee Funds. Note: There are ongoing fees associated with investing in mutual funds, please read the prospectus carefully. Whether you wish to invest on your own or with the advice of a financial advisor, Wells Fargo Advisors offers a variety of investment accounts such as brokerage, IRA, and Education Savings Account.
For more information on types of mutual funds, reviewing historical performance, and selling funds see our additional mutual fund investing articles.
Mutual funds available without transaction fees may change at any time without notice. Therefore, any mutual funds purchased without a transaction fee may be subject to a transaction fee for subsequent purchases or upon liquidation.