Best brokers for mutual funds
A mutual fund broker could help you diversify your investments
Mutual funds are generally regarded as a safer investment method than purchasing individual shares in a company. A mutual fund is a collection of investments that include stocks, bonds and other assets, but it's managed by financial experts who decide when to sell or buy investments to stabilize the fund's performance, create returns for investors and minimize losses.
Individual investors can purchase shares in a mutual fund inside a retirement account or in a traditional investment account through a broker. Here, we've identified some of the best mutual fund brokers for retail investors.
What is a mutual fund?
A mutual fund pools money from a number of investors to purchase securities like short-term debt, stocks and bonds. The combined investments are the fund's portfolio. As an investor, you can purchase shares of a mutual fund, with each share representing your ownership.
There are a few reasons you might want to invest in mutual funds:
Diversification: Investing in a single stock is like putting all your eggs in one basket — a single event that results in stock prices falling could be financially devastating. With a mutual fund, you own shares in a number of different investments. Their cumulative losses and gains produce your profit. If one (or a few) stocks prices fall, your share in the mutual fund may remain stable.
Your risk of losing money is smaller with a mutual fund because it’s a diversified investment vehicle.
Liquidity: When you decide to invest in mutual funds, you can redeem (sell) your stocks at any time. You'll receive the current net asset value (NAV) minus any applicable fees. Other investment types may be illiquid, which means that it's more difficult (or impossible) to get your money out of the investment before its maturity date. Real estate and some debt instruments are examples of illiquid investments.
Affordability: There may be a lower financial barrier to entry with a mutual fund than with individual stocks. For example, if you'd like to invest in Amazon stock, you'll pay more than $3,500 per share at the time of publishing. But if you choose to invest in a mutual fund with Vanguard that has Amazon stock in its portfolio, you could get started with a $1,000 minimum investment.
Professional management: Fund managers select the investments included in a mutual fund's portfolio. They also decide when it's time to sell specific investments and buy others to produce returns for investors.
Compare popular mutual fund brokers
It's crucial to research companies before trusting them with your investment. We've done the work to provide information for some of the most popular mutual fund brokers.
- Account minimum: $0 if you choose a Select Account
- Per-trade fees: Depends on internal expenses of the individual investment
- Investment app: Yes
Edward Jones is a full-service financial brokerage that offers services for individuals and businesses. You can get a 529 college savings plan or retirement account through Edward Jones and choose mutual funds as your investments.
Highlight: Edward Jones offers one-on-one financial advice; you'll meet with a financial advisor, discuss your goals and financial situation and receive guidance about where to invest your money.
Pros
- One-on-one financial advice from live professionals
- $0 minimum for some accounts
- Over 15,000 branch locations
Cons
- Fees are high compared with those for robo-advisors
- Advisors receive commission
- Account minimum: $0
- Per-trade fees: $0 for stock, ETF and bond trades; funds fees don't typically have fees, but some are priced individually
- Investment app: Yes
Vanguard specializes in low-cost investing, so you may find it a good fit if you’re a buy-and-hold investor.
Highlight: The variety of mutual funds on Vanguard’s basic trading platform could benefit beginning investors.
Pros
- Many low-cost mutual funds available
- Large selection of mutual funds
- Investor-owned
Cons
- May not be ideal for advanced investors
- Limited data and research available on the Vanguard site
- Account minimum: $0
- Per-trade fees: $0 for Schwab Funds and funds participating in OneSource; up to $74.95 for all other funds
- Investment app: Yes
Charles Schwab offers more than 4,000 mutual funds with no transaction fees. Sophisticated tools combined with $0 commissions mean that even active traders can conduct business on the platform without racking up a ton of fees.
Highlight: Schwab specializes in providing educational resources for those new to investing.
Pros
- No minimums or per-trade fees for Schwab Funds
- Large selection of mutual funds
- Commission-free trades
Cons
- Uninvested money may be deposited into the brokerage sweep account
- Some funds have per-trade fees
- Account minimum: $25,000 for Active Portfolios and Ameriprise Strategic Portfolio Service Advantage
- Per-trade fees: Varies by individual mutual fund type
- Investment app: Yes
Ameriprise Financial is a full-service brokerage offering asset allocation, financial planning and ongoing portfolio management services. Advisors also sell financial products and insurance.
Highlight: Ameriprise Financial offers several investment programs to provide a one-stop-shop experience for investors.
Pros
- More than 2,200 funds available
- Wide array of financial services
- Works with more than 160 fund companies
Cons
- High minimum account balance requirements
- Fees may be high depending on type of fund
- Account minimum: $0
- Per-trade fees: Fees vary by fund; some mutual funds have no transaction fees
- Investment app: Yes
Fidelity Investments has a reputation for providing excellent customer service. More than 3,400 of its 10,000-plus mutual funds have no transaction fees. With Fidelity, you'll get helpful research tools and a highly rated mobile app.
Highlight: Fidelity offers mutual funds from several big-name companies, and opening a brokerage account takes just a few minutes. Buy-and-hold investors may enjoy the no-frills platform.
Pros
- More than 10,000 funds to choose from
- Fast onboarding for new investors
- About 3,400 of the mutual fund options are no-load funds
Cons
- No commodity purchases
- No cryptocurrency purchases
- Account minimum: $0
- Per-trade fees: $0
- Investment app: Yes
E*TRADE appeals to seasoned investors as well as newbies with its robust trading platform and a suite of educational and portfolio-building tools.
Highlight: The E*TRADE website and mobile app offer access to real-time market commentary and quotes. Active traders can use the Power E*TRADE platform for help executing complicated investment strategies.
Pros
- Portfolio-building tools
- Large selection of mutual funds
- Helpful educational resources
Cons
- Website is somewhat difficult to navigate
- Few local branches
- Account minimum: $0
- Per-trade fees: $0 to $9.95
- Investment app: Yes
Active traders may find a number of great features with Ally Bank. The brokerage doesn't offer any zero-transaction-fee mutual funds, however.
Highlight: Ally Bank offers competitive pricing, advanced trading tools and no account minimums. It could be a good fit if you want to purchase shares of mutual funds to hold for the long haul. Transaction fees on mutual funds could get in the way of frequent trades, though.
Pros
- Suite of free tools
- Automated portfolio management
- Large selection of mutual funds
Cons
- No physical branches
- Uninvested cash earns zero interest
How to invest in mutual funds
Investing in mutual funds is a straightforward process once you've decided which brokerage you prefer. Here's how to get started:
- Open an account with a mutual fund brokerage. You'll provide your Social Security number, date of birth, full legal name and current address to help the brokerage verify your identity and satisfy federal requirements for opening a new account.
- Explore your mutual fund options to find one (or a few) that matches your investment goals. Decide whether you want a single "all-in-one" fund or multiple funds. Each broker offers access to different funds, and many have online tools to help you narrow your options. Familiarize yourself with the available funds and make sure you’re comfortable with the minimum investment requirements and fees.
- Choose your mutual fund. Read the fine print before making a final decision to invest in a mutual fund. Check to see if it's a no-load fund and verify that the fund matches your risk tolerance. Look at the fund's past performance as well as its goals.
- Transfer funds from another account to purchase shares in the fund(s) you've chosen. Depending on your bank and the mutual fund broker, it may take a few days to complete a funds transfer.
Types of mutual funds
There are four main types of mutual funds. Each type spreads risk across several investments while simultaneously capturing gains from those investments.
- Equity funds
- Equity funds make up about 55% of all mutual funds on the market today. Funds are often based on the size of the companies' stock inside the fund:
- Large-cap fund: Market value of $10 billion or more
- Mid-cap fund: Market value of $2 billion to $10 billion
- Small-cap fund: Market value of $300 million to $2 billion
Equity funds may focus on a specific sector, like oil and gas, health care or technology. Owning a few different mutual funds across various sectors can help mitigate risk.
The investment style of the equity fund may also differentiate it among mutual funds. Growth fund managers look for stocks that could produce above-average returns. Value fund managers seek stocks that are undervalued by the market.
You can also choose equity funds by the geographic location of the companies within the fund's portfolio. International funds invest in companies that aren't U.S.-based, while global funds invest in companies located both within the U.S. and abroad. Emerging market funds seek out companies in developing countries.
- Fixed-income funds
- Fixed-income funds primarily invest in bond funds, which invest in corporate and government debt and are widely considered a safer investment than stocks. They also have a smaller potential for growth. Investors receive a fixed amount of money on their investment. Those approaching retirement may choose to move their investments into fixed-income funds to protect their nest egg from the volatility of the stock market.
- Money market funds
- Money market funds are also fixed-income mutual funds, but they invest in short-term (high-quality) government, corporation or bank debt. These assets may include certificates of deposit (CD), commercial paper or U.S. Treasurys. Money market funds are traditionally a safe investment.
- Balanced or hybrid funds (stocks and bonds)
- Also called asset allocation funds, balanced or hybrid funds represent a combination of fixed-income and equity funds. Target-date funds are balanced funds that automatically reallocate investment ratios to line up with the investor's retirement target date. As an example, you could start out with 60% invested in stocks and 40% in bonds and shift to 50% in each five years from retirement, then to 20% stocks and 80% bonds two years from retirement.
There are other types of lesser-known funds, including hedge funds, real estate investment trusts (REITs), socially responsible funds, managed futures and commodities. These specialty or alternative funds fall into a catch-all category.
Pros and cons of mutual funds
There are both advantages and disadvantages to investing in mutual funds. Before choosing this type of investment vehicle, make sure you understand the different pros and cons and consider your budget and financial goals.
Pros
- Advanced portfolio management
- Risk reduction by diversification
- Affordability
- Convenience
- Flexibility to buy and sell funds
- Variety of fund options
Cons
- Fees reduce gains
- Some degree of risk
- Distributions from a fund are taxed as capital gains
Mutual funds FAQ
How much does a mutual fund cost?
Companies managing mutual funds charge an annual fee that may be 0.5% to 2.5% of your investment in the fund. They may charge other fees as well. Some mutual funds add a sales charge to their fees. These fees are load funds and may represent a percentage of the new money you add to the fund or the money you withdraw from the fund. Many financial professionals recommend "no-load" mutual funds, which don’t require a load fund that could cut into your returns.
How much money is required to invest in a mutual fund?
Mutual funds set their own minimum investment amount. They may impose a minimum for first-time buyers, and funds with lower expense ratios may require a higher initial investment. While exchange-traded funds (ETFs) don't have minimum investment amounts, they charge fees for trades.
Can you make money from a mutual fund?
Yes, although no investment return is guaranteed, no matter which investment vehicle you choose. There are three ways to make money with mutual funds:
- Interest on bonds and dividends on stocks: Mutual funds pass money earned on stocks and bonds to investors.
- Capital gains: Many funds pass capital gains, or the increase in the price of securities, on to their investors.
- Fund holdings price increases: Investors can choose to sell their shares of a fund for a profit.
What is the difference between index funds and managed mutual funds?
Both investment types let you invest without choosing individual stocks. The major difference between index funds and managed mutual funds is their earning potential and how they’re managed.
Index funds represent a pool of investments that mirror a market index (Dow Jones Industrial Average, S&P 500 or Nasdaq composite). When the market index produces gains, the index funds also produce gains.
A mutual fund invests in a number of assets (stocks and bonds), and investors can purchase shares of the fund. Mutual funds are monitored by professionals who regularly buy and sell trades inside the fund to maximize potential gains. The value of your investment in a mutual fund rises and falls with the overall fund's performance.
Bottom line: Should I invest in mutual funds?
Maybe. Building a portfolio of individual stocks is a time-consuming and risky activity that may not produce the desired result for a casual investor. If you have specialized knowledge of a certain sector and are an experienced investor, you may be able to create a portfolio that outperforms the market and many mutual funds.
For most people, investing in mutual funds is a smart way to gain money while relying on fund managers to decide when to buy and sell investments within the fund. Before you invest in a fund, research historical returns, but keep in mind that past returns are not a guarantee of future performance.
Ideally, you'll choose several mutual funds to spread out the risks involved with investing. Start slow, and make sure you understand any fees associated with investing before you buy shares of a mutual fund.
- Article sources
- ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Investor.gov, "Mutual Funds." Accessed Nov. 5, 2021.
- CNN Money, "Ultimate guide to retirement: How much do mutual funds cost?" Accessed Nov. 5, 2021.
- Los Angeles Times, "What's the difference between ETFs, mutual funds and index funds?" Accessed Nov. 5, 2021.
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