It comes down to simple mathematics.
Online trading is growing at a phenomenal rate. The mutual fund industry is accelerating at an equally rapid pace. That simple equation has a number of brokerages increasingly offering mutual fund trading on their Web sites.
Mutual fund assets grew to $4.401 trillion in the United States in September, up 32.3 percent from a year ago. Those figures include stock, bonds, income, and taxable money market funds, according to the Investment Company Institute. In September, stock funds grew a whopping 48 percent, to $2.39 trillion, compared with a year ago.
E*Trade's mutual fund center features more than 3,000 mutual funds from companies such as Vanguard, T. Rowe Price, and Invesco. The center also offers investment tools and research, such as access to prospectuses, historical charts, and portfolio details.
Mutual fund companies like Stein Roe got into the business of allowing customers to trade mutual funds over the Internet earlier this year, while longtime discount broker Charles Schwab has offered a special mutual funds section, OneSource, since it launched its online trading service a year ago.
"Mutual funds in general account for about 50 percent of assets that customers hold," said Greg Gable, a Schwab spokesman. "It's grown dramatically over the years, and there's no question it'll be a larger and larger portion of assets over the years."
Driving the rise in mutual funds is the growing number of companies that offer them as part of an employee's 401K package. Often times, these companies offer several funds from which to select. The number of funds available has increased dramatically of late, creating a situation where investors have thousands of choices to wade through.
Veronica Lentfer, director of new product marketing for E*Trade, said that as investors become more comfortable with online stock and options trading, they increasingly began asking the online brokerage company to add mutual fund trading to its offerings.
Although E*Trade is just now entering the mutual fund arena, Lentfer said the funds always had been part of the company's strategy.
In comparing the use of an online brokerage service to the prospect of purchasing mutual fund shares directly, Lentfer and Gable said each method has its benefits.
"To E*Trade customers, they get the benefit of consolidating their [account] statements," Lentfer said.
Gable pointed out that brokerage firms offer a wide selection of funds to investors, including no load, no transaction fee funds. But, he said, investors who have only one or two mutual funds may find approaching a fund company directly more useful than trading online.
As for competing brokerage firms increasingly rushing into the mutual fund market, Gable had this to say: "Competition is good...It keeps everyone on their toes."