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What Works: Minimum Investments and More in Brokers' Fund Programs

Jamie Heller

The more you write about online brokers' fund features, the more fund features it seems there are to write about.

After a column a couple of weeks ago about the best online brokers for mutual fund buyers, readers wrote in about several other factors for judging brokers' fund programs. This column addresses some of those factors. (Readers also hit on other issues. Yesterday I wrote about fees charged by brokers on fund transactions. Monday, I review other brokers readers like for funds.)

As always, please tell me what you think at whatworks@thestreet.com, and please include your full name.

Mutual Fund Minimums

So you're interested in a fund, but you're not sure how much of a commitment you're ready to make. You think you want to invest, say, $2,500. "Not enough!" says your broker. "Double it!"

Turns out some brokers impose their own minimum investment on so-called no transaction fee (NTF) funds -- no-load funds you can buy and sell without paying the online broker a fee. At CSBFdirect (nee DLJdirect) and SiebertNet, for example, the minimum initial investment on an NTF fund is $5000. That may be much more than you'd need to put up if you bought directly from the fund company. As an example, the (ATCHX Quote)Amerindo Technology fund sells for a $2,500 initial minimum investment from the fund company. But if you buy the fund through Siebert's NTF program, the minimum doubles. (You can get the lower minimum at Siebert if you pay a $35 fee.) At Schwab, the initial investment on an NTF fund is at least $2,500. Note: The initial investment through a broker may be higher than the broker's minimum, depending on the fund family. IRAs carry different fee structures. Other firms, like Datek, E*Trade, Ameritrade and TD Waterhouse, pass along the minimum imposed by the particular family.

Here's a twist: Sometimes the broker's minimum may be lower than what you'd pay if you bought the fund from the family. At CSFBdirect, the minimum investment on transaction fee funds is generally $1,000. That's a good deal. Many Vanguard funds, for example, (a family that CSFBdirect offers) carry a $3,000 minimum if you buy from Vanguard. Meanwhile, at Schwab, you can get into the (WVALX Quote)Weitz Value fund for $2,500, when you'd need to put up $25,000 to buy the fund from Weitz directly.

If investment minimums are an issue for you, ask your broker about its policy and how it applies to specific funds you're considering.

Show Us the Goods

On the topic of specific funds, reader Jim Hoffman of Chicago makes an important point: A broker "may say they offer a fund family, but in reality don't offer all the funds in the family. ... For example, I have found Vanguard funds that are just not available at E*Trade, who say they offer Vanguard but really only [offer] a portion of the offerings."

It's a real issue. It's why in my first column on this subject, I commended brokers who made their actual fund offerings not just fund families -- available on the public portion of their Web site. (E*Trade does do this.) This way you can see if a broker has the fund you're looking for.

Reader David Petersen offers another tip for finding a broker that sells the fund you're seeking: nonbroker fund screeners. At both MoneyCentral.com and Morningstar.com, when you look up a fund, you can see what brokers offer it. At MoneyCentral's Investor area, input the fund symbol and then click "Fund Facts" in the left-hand "nav" bar to get the list of places to purchase. At Morningstar, after you input the fund symbol, click "Purchase Info" under "Nuts and Bolts" in the left-hand nav bar.

At MoneyCentral, theoretically you can even design a fund screen where you input what's important to you and get back a list of funds that screens by whether your broker carries the fund. In the "custom search" fund screener, under "fund basics" choose "broker availability" and select your broker.

Unfortunately, the functionality seems limited. The list of brokers in the screening tool does not include brokers that show up if you input the fund symbol directly to get a list of brokers that offer it. Take the (STHBX Quote)Strong Short-Term High-Yield Bond. You'll see that it's available through E*Trade's NTF program, but E*Trade isn't a choice if you're screening and select "broker availability" as a criterion.

ETF Action

Several readers asked about exchange-traded funds, or ETFs. ETFs are something of a stock/fund hybrid. They are like funds, in that they represent a basket of investments, say in an index or sector. They are like stocks in that they trade like stocks on an exchange. (Please see this story for more info.) None of the brokers I spoke with treats ETFs any differently than individual stocks. You can trade these as often as you want for regular stock commissions.

If you're looking for information on ETFs, I suggest Morningstar, which has a special ETF section. Also, TheStreet.com's ETF report, published every Saturday, shows how all ETFs and another exchange-traded variation, HOLDRs, perform each week and year to date.