The Index mutual funds used to be the most popular investment tool to use with our index trading system. Those index funds offered by several financial institutions and brokers, reflect exactly the behavior of the market indexes they are affiliated with. Here is a checklist that you must verify before committing your hard earned money with those institutions :
Make sure that the index mutual funds past performance is perfectly in line with the
market index they are affiliated with. Some institutions are trying to be smart and try to outperform the index and most of the time they fail.
Verify in the prospectus what is the index mutuak funds management fees. It should not exceed 1% of assets on a yearly basis. Many institutions are even under 1%.
Verify if there are any front load fees. Most of the institutions does not charge any front load fees when you buy units in the index mutual funds. But there are exceptions to that and make sure you are not caught by surprise before investing in any of the index funds you intend to use.
Verify if there are any back load fees. Here it depends on which index mutual fund you are investing into. Most of the funds don't charge any fees when you sell your index fund units in SP500 related index . However it might not be the case for Nasdaq 100(QQQ) index fund because this index is much more volatile than SP500. In any case, this back load fees should be as low as possible and not exceeding 2%. If there is a back load fee, verify the minimum period you have to hold the index mutual funds before the fee schedule applies. In many cases, it could be around 90 calendar days.
Verify if there is any minimum period you have to hold the index fund before you can sell your units. If so this index fund is definitely not appropriate to use with our index trading system.
Verify the minimum amount you have to invest in the fund. This minimum amount varies from one institution to the other. It also varies if your account is a pension plan account (IRA for US citizens, RRSP for Canadian citizens) or a regular account. The minimum amount may be much smaller for a pension plan account than a regular account. So you have to make sure you have enough money to invest when selecting an index fund with a particular institution.
Verify what is the time limit in the day to get your order in to get the current day price. As you know, when you invest in an index mutual fund the unit price you pay is evaluated at the end of each day and this is the price you will pay. When you put your order in, the price is unknown and the
institution will evaluate the price only when the markets are closed. Many institutions will ask you to put your order in before a certain time like 3 PM or even 2 PM, if you want to get the closing day price (if you place the order later than their time limits, you will get the closing price of the next trading day). It is best if you can find an institution where this
limit is at 4 PM, because it coincides with the markets closing time. This is an important factor and verify that very carefully before opening an account.
Finally, make sure the institutions(s) you choose are reliable institutions and no fly by night institutions. Several, if not all major financial institutions offer that kind of investment products these days, so don't pick any small financial firm, if you are afraid they can go with your money.
The number of institutions offering that kind of product is very high. I know that in Canada all major banks are offering those products. Many of those banks even have offices in the US to offer the same products. We know that Canadian Banks are very solid financially and are protected by very strict governmental regulations. In the US, many independent firms offer
that kind of financial products.
Here are some financial institutions you can rely on to open an account. However we don't make any judgment on those institutions whatsoever. We mention them for courtesy only.
In Canada as we said before, all major banks offers that kind of index funds
and most of them cover all 3 indexes to which our index trading system applies. In
Canada, we can also rely on the Bank of Montreal, CIBC Bank, Royal Bank,National Bank and Nova Scotia Bank. They are all very reliable institutions and most of them have offices in the US.
For US investors we can rely on firms like Vanguard (I am not sure if they
have a NASDAQ fund), and also Rydex. Most of them asks for 1,000$ minimum amount for IRA accounts and 3,500$ for regular accounts. I am sure there are several other institutions in the US who offers that kind of index mutual funds.
As you can see there are a lot to consider when we want to get involved with index mutual funds. We noticed in the past when we used to trade index funds that index funds institutions can change their rules quite often like for instance the minimum holding period before selling. We got caught once with that ruling change. From that time we decided to use Etfs instead, it is far more flexible.
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