Mutual Funds: Picking A Mutual Fund

Buying and Selling
You can buy some mutual funds (no-load) by contacting the fund companies directly. Other funds are sold through brokers, banks, financial planners, or insurance agents. If you buy through a third party there is a good chance they'll hit you with a sales charge (load).

That being said, more and more funds can be purchased through no-transaction fee programs that offer funds of many companies. Sometimes referred to as a "fund supermarket," this service lets you consolidate your holdings and record keeping, and it still allows you to buy funds without sales charges from many different companies. Popular examples are Schwab's OneSource, Vanguard's FundAccess, and Fidelity's FundsNetwork. Many large brokerages have similar offerings.

Selling a fund is as easy as purchasing one. All mutual funds will redeem (buy back) your shares on any business day. In the United States, companies must send you the payment within seven days.

The Value of Your Fund
Net asset value (NAV), which is a fund's assets minus liabilities, is the value of a mutual fund. NAV per share is the value of one share in the mutual fund, and it is the number that is quoted in newspapers. You can basically just think of NAV per share as the price of a mutual fund. It fluctuates everyday as fund holdings and shares outstanding change.
When you buy shares, you pay the current NAV per share plus any sales front-end load. When you sell your shares, the fund will pay you NAV less any back-end load.

Finding Funds
The Mutual Fund Education Alliance™ is the not-for-profit trade association of the no-load mutual fund industry. They have a tool for searching for no-load funds at
http://www.mfea.com/FundSelector

Community Bankers Mutual Fund

Granted, money market funds have rarely crossed the "buck" threshold. Since their 1970 induction, money market funds have seen only two dips below $1 per share.

The first instance occurred in 1994, when a fund designed for bankers (not retail investors) slid to 96 cents per share. The fund, Community Bankers Mutual Fund, was liquidated with $82 million in assets. Since most of the fund's shares were owned by banks in the Midwestern United States, the consumer impact was low.

After an investigation by the Securities and Exchange Commission (SEC), the Denver-based fund was found to have broken SEC rules by putting more than 25% of its holdings in risky investments. (For more on investment risk, see How Risky Is Your Portfolio?)

According to law, money funds must keep their holdings in short-term investments, defined as the ability to receive the full principal and interest from the investment within 397 days. The average investment for a fund must not exceed 90 days.

A fund must also avoid:

* Investments that are tied to high credit risk
* Investments that are, or are comparable to, high-risk equities

The Community Bankers Mutual Fund fell victim to the derivatives meltdown of 1994, when they socked away nearly a quarter of their holdings in interest-rates packages. Derivatives gave the fund's advisors the chance to increase leverage in order to gain hefty rewards. Of course, like many institutions in 1994, the market turned against them and millions were lost. (For more on derivatives, see The Barnyard Basics Of Derivatives.)

On January 11, five years after the fund initially broke the buck, the SEC fined the fund's directors $5,000 apiece and imposed a $10,000 fine on fund president John Backlund. Backlund was also suspended from associating with any mutual fund or fund advisor for one year.