Creating Your Own Mutual Fund

Would you like to create your own custom mutual fund? Want to have control of exactly what your money is being invested in? It is actually quite possible to do this. It is called a synthetic fund. You can create whatever type of fund you like, and purchase whatever holdings you want. If you create an index fund, you can choose to exclude any companies that you don't want included. Some people exclude companies that they believe are not going to perform well in the future, or even companies that they find politically or socially disagreeable.

There are a few reasons that you might want to set up your own mutual fund. First of all, you won't have to pay all of the costs that you would have to pay for a professionally managed fund. Since you won't have employees and buildings and such, it won't cost must to start and maintain it. The only real cost involved is the fee or commission it costs you to purchase the stocks. You will also be in control of other factors, such as minimizing capital gains so that you can reduce your taxes, and the tax efficiency of the fund.

Of course, there are some issues that you should think about before you go this route. For example, you will lose some of the major features of traditional mutual funds, such as the diversification factor. You may not be able to buy enough shares in a wide enough variety of companies to be as diversified as a standard mutual fund. Also, you lose the professional management that mutual funds offer. These two major factors are a large part of why mutual funds can be so successful and are widely considered to be among the safest investment vehicles that you can put your money in.

If you choose to create your own synthetic fund, there are a number of companies that you can use. One of the most popular is ShareBuilder. They only charge $4 per investment at the time of this writing, making them very cost-effective. They also allow the purchase of fractional shares, meaning you can purchase less than one share in a company. For example, if you wanted to purchase shares in 15 different companies, and each of those companies currently had stock at $100 per share, you would need $1500 just to purchase just one share in each company. If you only had $1000 to invest, you would not be able to do this. But using a company like ShareBuilder will allow you to purchase less than one share.

Two other companies that allow the purchase of fractional shares are BuyandHold, and Folio[fn].