What are the trading cost differences between stocks and mutual funds in 401k account?

Question

I am confused about the mutual fund investment minimums and buying commission fees. I've been searching these question on the internet but no good answers. Hope someone can answer my questions below here.

When I try to buy mutual funds, there is an investment minimum of, let's say, 10k and it also asks for a commission fee of $20 vs $6 when buying stocks. Why there is an investment minimum, and the buying cost is a lot more expensive than buying stocks? Is the investment minimum only for the initial buying or do I have to buy at least 10k each time when I want to add more value to it? Do I have to pay the same commission fee every time when I buy more of the same mutual fund?

In my 401k account, it seems there is no investment minimum for me even though the fund does have an investment minimum requirement. And it seems I don't get charged for commission fee every time more shares are bought each month from my paycheck contribution. Why is the investment minimum and commission fees are waived in my 401k account?

Answer 1

I am going to try to take your questions one at a time:

Why there is an investment min

This is because the mutual fund company has decided to set this level, although it varies from fund to fund and fund company to fund company. It is usually dictated by the style of the investment and the fund company. Advantages of higher minimums include less record-keeping with small accounts and ensuring that you have "more serious" investors. Plus, mutual funds end up using your money to buy underlying investments, so lots of little amounts are less useful to them, likely.

the buying cost is a lot more expensive than buying stocks?

Again, depends on the company and its objectives. I suppose you are less likely to be buying and selling mutual funds more often (and they like it this way), so a larger fee cuts down on day trading and also helps the company make money. There are plenty of fund companies that offer their funds commission-free, however (such as Vanguard).

Is the investment min only for the initial buying or do I have to buy at least 10k each time when I want to add more value to it?

A mutual fund company will likely have both a minimum initial investment and a minimum additional investment, although the latter is likely much smaller. So, for example, you may have a $10k initial minimum, then a $500 minimum additional investment.

Do I have to pay the same commission fee every time when I buy more of the same mutual fund?

Likely, yes. There may be exceptions on things like reinvested dividends, but check the details of the mutual fund account. These should be obviously laid out in a fees table.

Why is the investment min and commission fees are waived in my 401k account?

This is due to an agreement that your employer has with the provider. Minimums are likely waived since there are a bunch of people at this employer all investing in the same funds. Commissions are waived as a part of the cost of providing the 401k to you.