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Know Firm's Features and Simplify Your Life

August 10, 1996|Charles A. Jaffe

A lot of people have problems programming their VCRs.

They can play and rewind a tape but don't know what the rest of those buttons on the box do, and they never make use of what they perceive as complicated programming features.

The same goes for mutual fund investors. Most know how to buy and sell their shares but don't pay much attention to other features that can simplify and/or improve money management.

"Fund companies are making things easier on the investor, but most people don't take advantage of it," says Michelle A. Smith, managing director of the Kansas City, Mo.-based Mutual Fund Education Alliance. "You need to know what conveniences your funds offer and how they apply to you."

Basic services include automatic investment programs, which regularly pluck cash from a bank account and deposit it with a fund. Many funds waive minimum initial investments for such investors,

Similarly, telephone purchases and redemptions, no-cost switching between funds in the same group and the ability to wire money to your bank are often routine options.

Details about less obvious features may be buried in the prospectus or take up a few lines on an application form. You can call the fund to ask what it offers (and beg for more), but here are a few common options that might make your life easier:

* Cross reinvestment. Get your dividend from Fund A, reinvest it in Fund B. It's a favorite tool of investment pros and a simple way to keep a portfolio balanced when one investment outperforms another, the way stocks have been beating bonds.

* Systematic withdrawals. If you need money at regular intervals--monthly, quarterly or annually--this is an easy way to get it. Not only is it ideal for scheduling annual redemptions from individual retirement and Keogh accounts, but it can be a helpful budgeting tool for people living on fixed amounts.

In addition, some systematic withdrawal programs are sophisticated enough to act as a bill-paying feature, in which the money is sent directly to the mortgage company, the bank or any creditor for which the monthly bill is a set amount.

* Check writing. Many people assume they can write checks only from a money market fund, but a lot of fund groups now offer checks on their bond funds. (The privilege that remains exclusive to money market funds--and which is not yet widespread--is debit cards.)

* Direct deposits. As long as your employer allows for direct deposit of your paycheck, you can bypass the bank entirely.

It's no different than if you were having your entire check deposited to your checking account, with a few dollars pulled out for your savings account. And because the money is set aside from take-home pay--rather than pulled from your bank account, as with automatic investment plans--there is no risk of bouncing checks because you forgot to reconcile purchases with your bank statements.

* Systematic exchanges. Deposit a lump sum of money into, say, a money market fund and have it pulled at regular intervals into the family's other funds. This service allows for easy dollar-cost averaging when you have a big chunk of money you want to move; in addition, it's an easy portfolio management tool.

* "Householding." If you, your spouse and children have several accounts with the same fund group, you may want to save a few trees and ease the strain on your mailbox by having all of your statements (and any dividend checks) put in one envelope.

* Powers of attorney. Several fund groups--notably Fidelity and Vanguard--provide power-of-attorney forms so that an investor can grant a relative or loved one control of the investor's assets in case he or she is incapacitated. This is convenient if you haven't organized the rest of your assets for estate planning and have most of your money in the fund group.

* Automatic address changes. If you summer in Oregon and winter in Palm Springs--or make regular moves between two or more places--you may want a program that lets your statements follow you, thereby eliminating the hassle of having your mail forwarded or doing a complete change of address every few months. And while you get the statements, the money you receive from the fund through redemptions or systematic withdrawals can either follow you or go to the bank of your choice.

"Not many people use these features, although they are tools that professional money managers are aware of," says Crissy Snyder of Denver-based Janus Funds. "Funds keep adding services to make investors' lives easier. People who don't know how those features work are missing out."

Charles A. Jaffe is mutual funds columnist at the Boston Globe. He can be reached by e-mail at or at the Boston Globe, Box 2378, Boston, MA 02107-2378.

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