Contrary to popular belief, not every mutual fund caters to a small slice of wealthy investors. It's true that some mutual fund issuers court financial elites who have hundreds of thousands or even millions of dollars to invest in a single investment vehicle. However, most of these firms are either boutique "private banks" or the "wealth management" arms of larger investment firms.
Most mainstream financial firms recognize that millions of middle-class Americans entrust significant portions of their retirement savings to mutual funds and other stable managed investments. In fact, firms like Edward Jones and Raymond James have become extremely successful simply by catering to this specific investor class.
Elite funds operate on a fundamentally different level than funds that cater to the middle class. These vehicles may leverage non-liquid or opaque financial instruments to produce enormous gains. However, they tend to be riskier than typical mutual funds: The emerging-market debt facilities and esoteric commodities that comprise many of these funds are subject to wild price swings that can devastate their owners' financial portfolios. These funds may require new clients to put up $10,000 or more.
Most mainline mutual funds tend to be more conservative in their outlook. These funds are generally made up of mature, dividend-paying stocks and other interest-bearing investment vehicles. In some cases, they may also include small holdings of stable agricultural commodities and precious metals. These funds may require initial investments of $2,500 to $5,000.
Some "discount" mutual funds demand lower initial investments of between $1,000 and $2,500. Since they're geared towards younger investors with less available capital, they actually tend to be weighted more aggressively towards growth stocks and in-demand commodities. Over the medium term, these funds generally outperform the S&P 500. However, they may still be too pricey for novice investors with limited funds.
Several different financial companies offer mutual funds with investment minimums of under $500. A recent study by SmartMoney magazine showed that a basket of these funds outperformed the broader market by an average of 3 percent per year between 2000 and 2010. Well-known firms that issue these ultra-discount mutual funds include Amana, Excelsior and Legg Mason. Most of these funds have microscopic management fees of between .1 and .3 percent. By comparison, mainline mutual funds may carry management fees of between 1 and 2 percent as well as non-refundable sales fees of between 3 and 5 percent.