Financial Information
Why do mutual fund companies put a “minimum investment” on their funds?
Question : Why do mutual fund companies put a “minimum investment” on their funds?
I bought a few funds thru the hartford and they require a $ 2000 minimum investment in their funds. I’d like to buy some but only have about $ 1100. I don’t want to invest less right now and be forced into doing their automatic investment plan (which is $ 50/month). What is the reason for the minimum investment levels the mutual fund companies put in place? Would the investment firm be losing money if an individual invested less than the minimum?
mutual fund companies
Best answer:
Answer by Lighthearted
The minimum investment allows the fund company to make money. If they were to open a ton of small accounts they would have to work hard and they would not make money.
the hartford…Really? Are you sure you aren’t buying overpriced stuff you could get much cheaper elsewhere? Spend a little time comparing at Morningstar.com and here a finance.yahoo.com.
That said, cost control is the short answer to your question.
Despite all the public relations nonsense about how financial companies just love to help the little guy, the cold hard facts are that small accounts are extremely expensive to administer and almost never profitable. In the mid term, let alone the long run, financial companies are much more profitable if they can keep their smallest accounts over $ 10,000 each and push their average account size above $ 100,000. That is where all the profits can be found.
(Cut offs for the really good stuff in the financial world usually start around the $ 250,000 range and really pick up steam between $ 500,000 and $ 1 million and then again over $ 5 million)