People may be able to buy and sell mutual fund shares over the Internet with a few clicks of their home computers in less than a year.
That's what officials at T. Rowe Price Associates Inc., Vanguard Group and Fidelity Investments predict. To be sure, trading won't occur over the Internet until the protection of investors is assured.
The Securities and Exchange Commission already is considering rules to regulate trading on the Internet, said a lawyer in the SEC's division of investment management. The SEC ruled in October that it's all right "under certain circumstances" for fund companies to distribute prospectuses electronically.
Netscape Communications Corp., Spyglass Inc. and Microsoft Corp., among other companies, are working to build a standard computer software to allow secure transactions over the Internet, industry executives said.
"It's likely that within 12 months there will be a universal standard to permit secure account access," said John Heywood, a principal at Vanguard, who oversees the company's electronic services business for clients.
"We are actively working on developing the capability to trade over the Internet," said Jeffrey Anderholm, Fidelity's vice president of electronic marketing. "I agree that a trading system will be up and running within 12 months."
Today, more than 60 companies offer mutual fund information over the Internet's World Wide Web, the portion of the computer network that offers audio and video content. An estimated 11 million people worldwide can connect to the Internet from their homes, according to the research group Forrester Research Inc. in Cambridge, Mass.
By the year 2000, 52 million people worldwide will have access to the Internet from their homes, Forrester estimates.
"It may take investors time to get comfortable with trading fund shares over the Internet because of security concerns," said Mark Mitchell, assistant marketing manager at Baltimore-based T. Rowe Price, which last week announced that it had set up a site on the World Wide Web that includes daily prices on funds of the 15 largest mutual fund families.
"Eventually, though, investors will warm up to the idea because it's such an accessible medium, and for many people it's very convenient."
MasterCard International Inc. and Visa International Inc. unveiled industry-standard technology last week to protect the security of credit-card payments on the Internet.
"It's a question of making sure hackers can't get in and manipulate people's accounts," said Jacob Herschler, vice president of marketing at Independence Life and Annuity Co., a subsidiary of Liberty Financial Cos. "Once those issues are addressed, there will be a lot of financial transactions done on the Internet that aren't there yet."
Discount brokers Charles Schwab Corp. and Jack White & Co. already offer proprietary computer software packages that allow individual investors to trade fund shares over PCs. So does Fidelity.
America Online Inc. said it's working with DST Systems Inc. to introduce a service that will allow investors to buy and sell mutual fund shares through PCs.
Unlike the Internet, which is publicly accessible, America Online's network is proprietary.
Vienna, Va.-based America Online said it doesn't need approval from the SEC to launch the new service because any transactions will be between the fund company and the investor.
"We're not selling securities on-line," said Judy Tashbook, a spokeswoman for America Online. "We're the medium through which the fund companies will sell shares." But, she added, "this doesn't mean the SEC may not become interested in on-line transactions."
When investors want to buy shares of a fund, they can go to the AOL Mutual Fund Center through America Online, find the funds they want to invest in, and buy shares from the fund companies, Ms. Tashbook said.
"Since the site isn't built yet, I can't describe what the screen looks like, but it should be functional in three weeks," Ms. Tashbook said.
Mutual fund companies that plan to offer information on the AOL Mutual Fund Marketplace include Vanguard, Fidelity, Twentieth Century Cos., Kaufmann Fund Inc. and Scudder, Stevens & Clark Inc., America Online said.
Other fund companies that have shown interest are Berger Associates Inc., Dreyfus Corp., Founders Asset Management Inc., Gabelli & Co., Pilgrim Baxter & Associates, Strong Capital Management Inc. and T. Rowe Price.
Investors who buy shares through the Internet or America Online would be charged the same fees that they would if they were buying shares directly from the fund company, industry officials said.
The ability to trade fund shares on-line will be a more cost-efficient way for fund companies to make transactions since everything is done electronically. It also would give companies another distribution channel through which to market fund shares.
Consumers would have the advantage of being able to make trades 24 hours a day. They also would have easy access through their PCs to personal account information and details about the funds, such as prospectuses.