- 1). Research the type of company you're going to want to invest in. You do this because the Securities and Exchange Commission (SEC) mandates that the name of your mutual fund must demonstrate the type of companies or the type of securities your fund is going to invest in. For example, if your mutual fund is called Johnson Stock Fund, that means that the majority--80 percent to be exact--of the fund's investments are in stocks. Because of this, pick a type of industry or security that you are experienced with.
- 2). Register with the SEC. Because the SEC wants there to be transparency and a certain set of followed rules, they mandate that each mutual fund register. This way, they can keep track of what is going on, but more importantly, the investors are a little safer.
- 3). Set up your fund's fees. The fees are the way that a mutual fund makes money to cover administrative costs as well as paying the manager. The most common type of fee is known as a load fee which is a fee tacked on to any transaction. For example, if an investor comes along and invests $5,000 and your fee is 5 percent, that means that they are only getting $4,750 worth of the mutual fund; the rest goes to the administrative costs.
Another fee that is common for mutual funds is an account fee. If an individual's total investment in the mutual fund drops to a certain level--determined by the manager--said manager can exact a fee.
The SEC has set up a series of rules to ensure that there aren't too many fees, though. They've mandated that an individual can only charge up to 8.5 percent of a total transaction. Therefore, for every $1,000 invested, the mutual fund can make at most $85 for administrative costs. - 4). Put together a prospectus, which is a document that the SEC files away that, upon request, an investor can research. This document explains the objectives of the mutual fund, the type of investments any money will go toward, all the fees that the mutual fund employs, the type of manager along with experience, and what risks there are. This is done to ensure that the investors don't get scammed out of their money.
- 5). Sit down and discuss your mutual fund with individual investors. This is important because there are so many mutual funds; you need to persuade those investors to sign on with you. You need their money to grow the mutual fund. It becomes a snowball effect. As more people start to invest in the mutual fund, you have more funds to invest in your specific fund's security and the mutual fund starts to do better. Then, even more people will invest. Therefore, getting these initial people is imperative to the life or death of the mutual fund.
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