How to Start a Mutual Fund

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To start a mutual fund, understand the field, consider hiring an accountant and attorney, and think about hiring a third-party administrator when the fund is small. Make sure a mutual fund contract allows you to pull out at any time with insight from a financial consultant in this free video on mutual funds.

Part of the Video Series: Investment Tips & Financial Planning
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Video Transcript

Are you very, very knowledgeable about a specific field? Rather than investing in mutual funds, have you ever considered starting your own? Hi, this is Roger Groh of Groh Asset Management. We all know mutual funds, and over the years have been investors in them, but have you ever started thinking about actually managing one? There are a couple of things to consider as you go through the process to think about setting one up. First of all, do you really understand that field because if you're not good at what you do, you're probably not going to hold investors' money for long periods of time. Second, from an administrative point of view, this is a heavily regulated business. Whether the Securities and Exchange Commission in the United States or other markets, they may mandate minimum capital requirements, minimum reporting requirements, minimum shareholder requirements, minimum, minimum, minimum and on and on and on. You can spend a fortune hiring your own accountant and attorney to do that for you. Some of the administrators actually give you one more option. Rather than starting your own fund from scratch and just hiring them to be your back office, you actually use one of their funds and just rename it for you. The advantage, again, is you get to cut your expenses. But be aware, they're probably going to want a piece of the revenue and they're still going to charge you quite a bit of money in terms of administrating the fund. What does it take to break even in terms of assets? Well, that's a discussion you'll have to have with them. One other thing to consider: There's going to be a break-even point in terms of management fees in the fund for you. And as a result, you may want to hire a third-party administrator for the early days in your fund when you're small. And as you get bigger and move past that break-even point, you may want to leave that administrator and do it on your own or transfer to another that's more competitive. So be sure that whatever contract you sign with the third-party administrator gives you the right to get out, and that way, you can always shop for bigger, better, stronger alternatives. Hope that helps. Good luck in your investing. I'm Roger Groh of Groh Asset, and thank you very much for spending time with me.


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