Instant Access for Investors as Mutual Funds Go On-Line
It's a shareholder's dream. Up-to-the-minute price quotes. Electronic prospectuses. Instant trades. All available from your home computer.
That's the promise of the Internet as mutual funds move on-line. But there's a warning too. Just because investors have access to vast amounts of instant information does not mean they should become instant traders, moving in and out of funds with the flick of a computer mouse.
Computer technology "has given us the tools without giving us the wisdom to handle them constructively," warned John Bogle, chairman of the mutual-fund giant Vanguard Group, in a speech earlier this month.
At the moment, mutual funds are emphasizing the informational aspects of the Internet. Nine of the top 10 mutual-fund families have already set up sites on the Internet's World Wide Web. The tenth one plans to be on-line by midsummer.
While it is possible to trade mutual funds on-line (see, for example, the PAWWS Financial Network at http://www.pawws.com), many mutual funds are using the Web to educate investors. For example, Vanguard (http://www.vanguard.com) offers a "Plain Talk" booklet on bear markets. The Calvert Group (http://www.calvertgroup.com) has a column on socially responsible investing.
If you're looking for information on more than one fund, several sites offer independent ratings and the latest prices. One of the most extensive is NETworth (http://www.networth.galt.com). Users can find the top 10 mutual funds in dozens of sectors over a range of time periods, as well as Morningstar ratings and prices.
Another good source is Mutual Funds Interactive (http://www.brill.com), which offers price quotes as well as commentary and columns on investing. Mutual Funds Magazine has a Web site (http://www.mfmag.com). The investor interested in closed-end funds should try the Internet Closed-End Fund Investor (http://www.icefi.com).
By going on-line, the funds hope to reduce costs. For example, every time a customer requests a prospectus by phone, it might cost a fund $8 or more to process and mail the information. Over the Internet, it costs only pennies.
Will shareholders exchange their printed prospectus for an electronic one? Probably not right away, says Bert Feuss of vice president of marketing information management at Franklin Templeton.
But Vanguard's Web site is already logging hundreds of thousands of visits a month. Last year, the Pennsylvania company conducted more customer interactions electronically than it did with all its shareholders by all means a decade ago, says Brian Mattes, a principal at Vanguard. "We clearly see [the Web] as the 800 number of the future."
The fund family also allows shareholders to look up their account balances on-line. By fall, it expects to allow them to exchange shares and perhaps even sell them. On-line purchases, however, will have to wait until the industry comes up with a viable electronic payment system.
Security remains one of the biggest concerns about Internet transactions.
Many funds, such as American Century (http://www.americancentury.com), issue a password to grant access to account information.
Will investors take that privilege and become the whirlwind traders that Vanguard's Mr. Bogle worries about?
"I'm enough of an idealist to be confident that the kind of casino capitalism that is in the air today will not be a permanent fixture of the mutual fund industry," he said in his speech.
But he added: "Anyone who is not cognizant of these risks is making, in my view, a perilous mistake."