It’s the Year for Diving Headfirst Into the Net

For the last year or so, mutual fund companies have been getting their feet wet on the Internet, mainly by providing electronic versions of prospectuses, shareholder reports and other printed materials that investors can obtain through the mail.

But from now on, the manner in which fund companies communicate with computerized investors will become a lot more interesting.

“1995 was a year of getting systems into place and posting information to see what investors are interested in,” says Brian Mattes, content editor for the Internet sites operated by Vanguard Group of Valley Forge, Pa.

“1996 and beyond will be the era of electronic transactions,” he says.

The day when investors can access up-to-the-minute account information and trade mutual funds via their computers is drawing near.

For example, the Calvert Group of Bethesda, Md., unveiled a service earlier this month that allows fund shareholders to view their current balances and five most recent transactions, with all information updated daily. Also this month, Prudential Securities of New York unveiled a similar service for client holdings and transactions generally, not just those dealing with mutual funds.

In about a month, Vanguard shareholders should be able to look up their account records; sometime this year they will probably be able to trade mutual funds through their computers, Mattes predicts.

But other fund groups are proceeding more cautiously with online transactions, in part because of the threats posed by hackers.

“There are security issues we’re looking at, but it’s definitely in our plans,” says Betsy Pohl, a spokeswoman for Fidelity Investments. The Boston fund giant allows computerized fund trading through a proprietary software package, but not yet over the Internet.

Boston-based Liberty Financial, which offers 58 mutual funds through Stein Roe, Colonial and other families, has gone the extra mile on the information superhighway by unveiling an investment product that apparently is the first to be offered exclusively through the Internet.

Liberty’s WebSaver Annuity isn’t a mutual fund but rather a fixed annuity--an insurance contract that pays a set yield with certain payout options and other features. But special Internet-only mutual funds, possibly with lower fees, could be coming, predicts Jacob Herschler, a vice president at Independence Life & Annuity, a Liberty subsidiary through which the annuity is offered.

“We think the Internet will really change the way financial products are marketed,” he says.

One wrinkle with Liberty’s new product is that it offers higher yields than many competing annuities, with lower surrender charges, Herschler says.

By dealing directly with investors, the company can save money that would otherwise go to pay insurance agents. The company can also shave costs by printing and mailing fewer pieces of literature.

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Although fund trading will represent the next big wave of Internet usage, it’s currently more common for investors to buy shares by downloading fund prospectuses from an Internet site, printing them out, filling out the forms and mailing them with their checks, says Allison Hartsoe, manager of corporate communications for Galt Technologies. Galt is a Pittsburgh firm that helps fund groups set up and maintain Internet sites.

Downloading prospectuses can save at least a few days in the investment process, as printed materials take about that long to arrive by mail.

Internet hookups are proving handy in other ways. For example, many fund groups allow investors to ask questions via e-mail and receive answers within a day or so. Also, investors can review charts of fund performance, run hypothetical investment calculations and even read about job openings at certain fund groups, such as Calvert.

Of course, investors can also ask questions by calling fund companies on their toll-free telephone lines.

“But this lets investors do it on their own schedules,” says Mattes. Most families, including Vanguard, don’t run 24-hour phone operations.

Also through the Internet, investors can converse with fund managers and other hard-to-reach financial experts at scheduled forums.

Investors can also receive shareholder reports, performance results, news and the like more quickly. Vanguard, for example, posts daily price changes and other results for its funds by 4 p.m. PST.

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Growth of mutual fund assets will slow this year, according to a forecast from Dalbar Inc. The Boston research firm sees funds ending 1996 with $2.8 trillion, up from an estimated $2.6 trillion at the end of 1995.

The lingering federal budget battle and uncertainty surrounding the presidential election are among the issues that may sap enthusiasm for investing, Dalbar predicts.

A similar Dalbar forecast made at the start of 1995 underestimated the growth of fund assets for the year by about half.

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Pros and Cons of Internet Investing

Pros

* It provides quicker access to fund information.

* Investors can obtain general information and receive personal answers to e-mail questions at any time.

* Investors will soon be able to look at their account information and trade mutual funds over the Internet.

* Special Internet mutual funds, perhaps featuring lower costs, could become available.

Cons

* Almost all information now obtainable at fund Internet sites is available elsewhere in printed form.

* Security issues remain a threat. Some firms don’t plan to allow online trading through the Internet for fear hackers might interfere.

* Investors may be tempted to time the market, perhaps with poor results, because of the ease and speed with which information is now available.

* Access to the Internet requires purchase of a personal computer and modem and payment of ongoing connection charges.