What funds should I invest? Where? $10 each month?

is $10 each month bad idea?

invest in mutual funds where there is no fee.

its fine but may be equivalent to the fees you'll incur

If this is the amount you have available I am going to assume a few other things:
you are fairly young
you have very little in other money
you do not have a lot of extra slack in your budget.

based on these assumptions I would strongly recomend you only consider a bank savings account at a reputable online bank. This could be Emigrant Direct, ING, Citibank, many others, or you could consider a local/ regeional bank with online accounts. I use Washington Mutual www.wamu.com. I say an online account because if you go to a branch and open the account your interest rate will be less than half. You may need to open a checking account online to qualify for the best rates, this was no plroblem at wamu because the online checking had more free perks anyway.

I would not recomend other investments because you are not able to handle losses, you are already tight financially and if you needed the money for some unforseen emergency with other investments you could loose alot of money over short periods, in other words the stock market and other investments are great over longer terms but in the mean time they fluctuate alot. When you have built up a savings reserve of say 3-6 months of expenses then you can think about other investments.

Hope this helps