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After you have an account open, you can do exchanges by telephone into other accounts. Exchanges save you the hassle of filling out more application forms every time you open new funds at the same company (although different account types, such as IRAs, do require separate account applications).
Make sure that you have another source of cash during the time it takes for the fund company to open your money fund and send your first check. Sometimes people send in almost all their money and then, in a few days, they wish that they had kept some back.
5. Dividend and Capital Gains Payment Options. Most mutual funds make dividend and capital gains payments. If you’re not living off this income, it’s usually best to reinvest these payments by purchasing more shares in the fund. To reinvest, just check the first box. This strategy eliminates the hassle of receiving and cashing checks often and then figuring out where to invest the money (but it does not change the taxability of a fund’s distributions).
On the other hand, if you’re retired, for example, you may want the distributions on your fund sent to you so that you can spend it on whoopee cushions and sports cars. On this form, you can choose to have the money sent to you as a check through the mail. Or, even better, the fund can electronically transfer the money to your bank account. This method gets you the money quicker and requires less mail to open and fewer checks to sign and schlep to the bank.
268 Part II: Establishing a Great Fund Portfolio
6. Wiring and Fund Express Options. This section allows you to establish some other options. Wire redemption, if established, allows you to request that money be wired to your bank account. Use this feature if you unexpectedly need money fast. Your mutual fund and your bank may charge for wiring services, though, so don’t use wiring as your regular way to move money back and forth to your bank.
If you want to make regular deposits into one of your fund accounts, you can select the automatic investment plan. This choice authorizes the fund to instruct your bank to send a fixed amount on a particular day of the month (or some other time period). You can do the same in reverse by withdrawing money on a regular schedule, too. The minimum is $50 (the amount is stated on the other side of this application — it should be stated here to make your life easier). If you want to establish this service for multiple funds, simply attach a letter with your added instructions.
Special purchases and redemptions is an electronic funds transfer — it’s like a paperless, electronic check that allows you to move money back and forth between your bank and mutual fund accounts. This process usually takes a full two days to complete because, like a check, the transaction is cleared through the Automated Clearing House (wiring can typically be done same day or next day). The mutual fund and the bank should not charge for this service because it’s just like a check (which means that it costs less than wiring).
To establish these additional services, remember to attach a preprinted deposit slip or blank check (write “VOID” in large letters across the front of the check so that no one else can use it).
7. Signature. Don’t forget to sign the form. A missing signature delays the opening of your account. (The fund company will mail the application back to you!) Attach your check to the application with a paper clip or staple, and pop everything into the postage-paid envelope that should have come with the application. If you can’t find the envelope, the addresses and phone numbers for the funds in this book are in the Appendix.
8. Check-writing option. This is a useful feature to sign up for on a money market fund. Most money funds limit check writing to amounts of $250 or more.
I don’t recommend establishing check writing for bond funds because it creates tax headaches. Every time you write a check on a bond fund, the transaction must be reported on your annual tax return (because the price of the bond fund fluctuates, you’ll be selling at different prices than you bought) — yuck! Keep enough cash in your money fund and just write your checks from there.
Chapter 11: Application, Transfer, and Other Neat Forms
Opening many fund accounts without getting writer's cramp
As you see in Part II of the book, some of the larger fund companies have a number of good funds, so you may want to invest in multiple funds at one company. Through a comprehensive account application form, mosffund companies let you invest in multiple funds without having to complete a mountain of paperwork.
However, not all fund companies offer these comprehensive account application forms. You are supposed to fill out a separate application for each fund you plan to invest in, but you don't need to. Here are several ways around this paperwork nightmare:
u0 Establish a money market fund first. Then you may do exchanges by phone into any other funds you want. When you call to order the money fund materials, ask for the prospectuses for the other funds that you're interested in. When you do