Best Brokers for Mutual Funds

Getting started as an investor can seem complicated. There’s a lot of advice about which stocks to pick, how to balance your portfolio, how to avoid fees and more. But investing can be much simpler than that for most of us.

Mutual funds are a way to invest in the stock market without becoming an expert yourself. Professional fund managers do the hard work for you, and the nature of these funds significantly reduces your risk. That’s because most mutual funds own hundreds or even thousands of securities. We’ve reviewed dozens of the best mutual funds brokers to help you decide which is the best fit for you.

What is Mutual Fund?

A mutual fund is an investment vehicle that invests investors’ money together for a common purpose.

For example, let’s say a technology-focused mutual fund receives $100 million in investor capital. Its managers will take that money and invest it in a portfolio of technology stocks. If the value of the portfolio increases, all investors in the fund mutually benefit.

Should you buy mutual funds through a broker?

It is important to mention that you can invest in mutual funds in two ways. You can open a brokerage account through one of the best brokers for mutual funds. If you are new to investing, check out our list of best stock brokers for beginners.

Alternatively, you can choose to invest in mutual funds directly through the companies that manage them. For example, suppose you want to invest in T. Rowe Price mutual funds. you t You can simply open an account with Rowe Price and buy your mutual funds through the company.

There are several advantages to buying your mutual funds directly, and one of the biggest is avoiding commissions. Indeed, many of the best brokers for mutual funds offer a list of mutual funds on a no-transaction-fee (NTF) basis. But there is no guarantee that the fund you want to buy will be on the list. Buying direct usually avoids any transaction fees.

On the other hand, there is value in keeping all your investments in one place. Many of the best mutual fund brokers have thousands of NTF funds. You can buy and sell a wide variety of stocks, bonds and ETFs in a brokerage account. The best stock brokers often have other value-added features as well, such as stock research, educational resources, and more.

Can you buy mutual funds online?

Many online stock brokers offer a selection of mutual funds that customers can invest in, including index funds and actively managed funds. With little or no commissions, low fees and a focus on low-expense-ratio index funds, online brokers can be a particularly affordable way to invest in mutual funds.

Most online stock brokers let you invest in exchange-traded funds (ETFs), a new way for investors to get mutual benefits from bundled funds. Rather than a fund that actively invests pooled money in various stocks, an ETF is a group of securities bundled into a single entity that you can invest in like a traditional stock.

Are mutual funds right for you?

Mutual funds can put your investments on autopilot and eliminate the need to do extensive stock research. Mutual fund investments also add diversification to a portfolio. After all, many mutual funds invest in hundreds, or even thousands, of different stocks or bonds. Your performance will not depend too much on any one.

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Who should invest in mutual funds?

Investing in mutual funds is best suited for:

• Investors who want to leave the research and evaluation of stocks to someone else.
• Investors who do not want to constantly monitor their investments. Mutual funds have a set-it-and-forget-it mentality for investors.
• Investors who want an all-in-one portfolio of stocks and their money is not dependent on the performance of a single company.
• Investors who do not want to worry about intra-day fluctuations in the value of their investment, as mutual funds trade only once a day.

Some people see robo-advisors as a cheaper alternative to mutual funds, as they are also a handy way to invest. In this scenario, the robo-advisor’s algorithms automate your investments according to your risk tolerance and other factors.

Should you invest in index funds or actively managed mutual funds?

There are two main types of mutual funds:

• Actively managed: These funds employ fund managers to select investments that they expect to provide the best returns for investors.
• Passively managed: This fund aims to track a specific benchmark index such as the S&P 500.
• Although both are technically mutual funds, people often refer to actively managed funds as “mutual funds” and passively managed funds as “index funds”.

Actively managed funds aim to beat the performance of the index. Fund managers make decisions to buy and sell stocks with money in the fund based on their expectations of the stock’s (ie, company’s) performance.

That does not mean that actively managed mutual funds will always beat their respective benchmarks. In fact, numerous studies have shown that actively managed mutual funds do not outperform most index funds. Some have excellent track records, but it’s important to do your homework before investing.

Passively managed funds are also known as “index funds” because they are set up to mimic the performance of an overall stock index. For example, an S&P 500 index fund would own the stocks of all 500 companies in that index, providing returns that match the index.

Once you have decided that mutual fund investing is right for you, the next step is to decide which of the two categories is more suitable for your financial goals. (Hint: For many investors, index funds may be a safer bet. Actively managed funds have significantly higher fee structures than index funds, so it’s important to make sure you’re getting your money’s worth.)

How much does a mutual fund cost?

If you’re looking for the best broker to buy mutual funds from, there are three potential costs to be aware of.

Commission

Most brokers have eliminated commissions for stock trades, but not for mutual fund. And costs can vary dramatically. Our best brokers for mutual fund have standard mutual fund commissions that range from $9.95 to $49.99.

As we touched on earlier, most (but not all) brokers offer certain mutual fund on an NTF basis. This means that as long as the fund you want is on your broker’s NTF list, you won’t have to pay commission. Many brokers offer easily thousands of NTF mutual funds. This should be the top priority while choosing which broker is best for mutual fund investment.

Sales charges

Also known as a “load,” some mutual funds charge an additional fee when you buy or sell. When making a purchase you may be charged a percentage of the purchase amount, known as a front-end load. Others charge a percentage when you make a sale, known as a back-end load. Both are becoming less common. Avoiding funds with sales charges is generally a good idea, as there are thousands of great mutual fund without them. Brokers usually have a search or screener function that allows you to filter for “no-load” mutual fund.

expense ratio

This is the ongoing cost of mutual fund investment. A fund’s expense ratio is its total fee structure, expressed as a percentage of assets under management. For example, a 1% expense ratio means that if you invested $10,000 in the fund, you would pay $100 in fees each year. To clarify, you don’t pay mutual fund fees directly (you won’t get a bill). Instead, funds collect their fees from the pool of money they manage.

Almost all mutual fund have an expense ratio. This is how they pay their managers, cover administrative expenses and pay for other necessary expenses of doing business. However, expense ratios can vary dramatically even among funds with similar portfolios and investment objectives. As such, it is important to compare funds before you choose them.

How do you invest in mutual fund?

The way you invest in mutual fund works a little differently than investing in stocks. In particular, mutual fund do not trade continuously. They set prices once a day after the market closes, and orders are processed overnight.

To buy mutual fund:

Enter the fund’s ticker symbol on your broker’s page. (Mutual fund have five-letter ticker symbols.) If you don’t know the correct symbol for your desired mutual fund, you can find it by entering the fund name.
Place your order. You will be taken to your broker’s order page. Instead of selecting a number of shares to buy, enter the dollar amount you want to invest.

Most mutual fund have minimum initial investment requirements as well as minimum requirements for subsequent investments. These are standard (taxable) brokerage accounts vs. Retirement accounts are often different.

Each fund has an order cutoff time (4 p.m. EST is typical), and orders placed before that will be processed the same day. Orders received after the cutoff time will be priced and placed after the following market day.

Alternatively, you can invest in mutual fund through some investment apps. These often come with lower fees and lower account minimums than traditional stock brokers, so they can be an easy place to start if you’re new to investing or just want to open a simple account like an IRA.