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Great Mutual Funds Closed to New Investors
It is a tale as old as the mutual fund industry itself. A mutual fund does well. It gets 5 stars from Morningstar. It starts showing up on mutual fund screening tools as one of the top performers of last year. Then, magazines and websites like Money Magazine, Fortune Magazine, MSNBC.com, and more start writing their best mutual funds of the year articles. Then, everyone wants in.
When the inflows get to be too much, the only solution is to close the mutual fund. Most mutual funds that close do what is known as a soft close. That means that no new investors can buy into the fund, but investors who already have money invested in the mutual fund can continue to invest more. This is the easiest because it avoids tricky questions like what to do about re-investing, if they do a hard close. That means the savvy investors who got in early when the price per share was low and earned profits as the price rose, get to keep investing, while late comers who are just following the latest media push are shut out in the cold.
Top mutual fund names like Dodge and Cox Stock Fund, Fidelity Contrafund, Fidelity Low-Priced Stock Fund, T. Rowe Price Small-Cap, T. Rowe Price Mid-Cap Value, and Third Avenue Small-Cap Value, for example, all recently reopened to new investors during the economic recession brought on by the collapse in the real estate market. This is a great opportunity for smart investors to get into these mutual funds. They might close again when things get better and they might not, but either way, these are good mutual funds that you want to have the option of investing in.
Even if the stock market downturn has left you without much room for investing, you can still take advantage. Most funds will allow current investors to invest later, even if the fund closes. That means, that just getting in to these funds for the minimum purchase amount is good enough. If the fund closes later, you’ll be an “existing investor” and when the time is right, you can still buy into great mutual funds that are closed to everyone else.