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Mutual funds are great investment products for people who don’t feel like researching and buying individual stocks. They can provide the safety of an expertly diversified portfolio. But you won’t have to pay the high fees of a professional portfolio manager.
You can easily purchase mutual funds from most online stock brokers. This is a hotly competitive industry right now. That means you can benefit from slashed minimums and decreased fees.
The Best Brokers for Mutual Funds
To make finding a brokerage even more convenient, we’ve compiled this list of the best brokers for mutual funds. All of the companies on this list offer low-cost mutual funds, in addition to other services for your portfolio.
1. Ally Invest
Ally Invest is the brokerage arm of Ally Financial, one of the leading financial companies in the United States. The Ally family also includes Ally Bank, one of our highest-ranked online banks. This makes Ally a great one-stop-shop for your financial needs.
Ally Invest offers extremely low commissions on mutual funds. You can buy and sell no-load funds for only $9.95 per trade. Ally currently offers more than 12,000 mutual funds, which is more selection than many online brokers.
In addition, Ally Invest recently eliminated commissions on stock, exchange-traded fund (ETF), and options trades. So if you decide you want to invest beyond mutual funds, this is an excellent option.
E*TRADE was one of the first online discount brokers to make a big splash in the industry. (Remember those old vomiting-baby ads?)
The broker currently offers more than 4,400 no-load, no-transaction-fee mutual funds. For funds that do require a transaction fee, it’s only $19.99. This is much cheaper than many stock brokers that offer mutual funds, but stick to the no-transaction-fee list if possible
Like Ally Invest, E*TRADE recently did away with commissions on stock, options, and ETF trades. That makes E*TRADE an all-around excellent choice if you need a stock broker.
3. TD Ameritrade
Here at Investor Junkie, we’ve considered TD Ameritrade one of our favorite stock brokers. It offers comprehensive trading tools and platforms that can help you maximize your investing experience. Plus, now stock and ETF trades are commission-free.
The fact that TD Ameritrade also offers over 3,500 commission-free mutual funds is just icing on the cake. Keep in mind that there are some no-load funds that do require a $49.95 commission.
4. Charles Schwab
Charles Schwab is a behemoth among brokers. Simply put, it’s the largest stock broker in the country.
Through the Schwab Mutual Fund OneSource service, the brokerage offers over 4,000 no-load, no-transaction-fee mutual funds. The minimum for many of these funds is only $100.
All other funds cost up to $74.95 per purchase.
Schwab also provides helpful tools and research that can help you pick the mutual funds that are right for your portfolio. Plus it has also eliminated transaction fees for most stock, options and ETF purchases.
Fidelity is one of the longest-standing stock brokers, and it’s considered a global leader in mutual funds. The Fidelity FundsNetwork offers more than 10,000 funds from Fidelity and other companies.
Fidelity also provides the Mutual Fund Evaluator, a tool that lets you filter and sort through the broker’s library of funds.
The broker offers four zero-expense ratio index mutual funds, but there are hundreds that carry no transaction fees. Fidelity requires no minimum to invest. Non-Fidelity funds carry a transaction fee of $49.95 per purchase.
Fidelity is now also a fee-free stock broker for stocks, options and ETFs.
A true pioneer in this space, Vanguard’s branded mutual funds are famous in the investment community. In fact, they’re often considered the gold standard.
There are currently more than 140 mutual funds bearing the Vanguard name. Along with the world’s oldest index mutual fund — the Vanguard 500 — there are funds that cover bonds, stocks, emerging markets and more. All of these are free of transaction fees.
In addition, the company offers more than 3,000 non-Vanguard mutual funds with no transaction fees as long as you trade online. Another 6,000 funds bear a modest $20-per-trade fee.
Note that Vanguard funds do have a minimum: $3,000 for non-retirement accounts and $1,000 for IRAs. And keep in mind that Vanguard still charges commissions on stock, ETF, and options trades.
7. J.P. Morgan Self-Directed Investing
It’s impossible to have a list of the best brokers for mutual funds without mentioning J.P Morgan Self-Directed Investing.
This online broker offers completely commission-free trading for mutual funds, stocks, and ETFs. It offers over 3,000 mutual funds, and there isn’t a separate list of mutual funds that charge fees like many other brokers have. There isn’t a minimum account balance requirement either, and you can even get up to $625 for opening and funding a new account.
You can’t invest in fractional shares or cryptocurrency. But for fee-free mutual fund investing, J.P. Morgan is worth considering. And it also has a robo-advisor offering if you want a helping hand with your investments.
Read our J.P. Morgan Self-Directed Investing review for all the details.
What Is a Mutual Fund?
A mutual fund is a professionally managed fund that uses money from numerous shareholders to invest in different securities. Mutual funds invest in different assets like stocks, bonds, or other securities. And because many mutual funds invest in numerous companies, they help investors diversify their portfolios.
How much a mutual fund costs depends on the value of the assets it invests in. Prices for mutual funds update at the end of each market day, letting investors buy or sell shares of the fund.
The main thing to note about mutual funds is that they’re generally actively managed. Some are passive, but this isn’t usually the case. This means a professional fund manager and team make decisions about the assets to invest in, which usually results in higher expense ratios for investors.
Mutual Fund Fees Explained
When browsing a broker’s mutual fund listing, you may find confusing information on several different kinds of fees.
Fees vary from fund to fund — it all depends on the broker. That’s why it’s important to always read the fine print and shop around. However, note that most funds will pay operating fund expenses out of each fund’s assets, instead of you having to foot the bill.
Here are some typical shareholder fees for mutual funds:
- Sales Loads: These are the commissions you pay to the broker who sells you the mutual fund. There are two kinds of sales loads:
- Front-End: You pay these when you purchase the fund shares.
- Back-End: You pay these when you sell your fund shares.
- Redemption Fees: As suggested by their name, these fees are assessed when you sell your fund shares.
- Exchange Fees: If you transfer your shares to another fund, you could be charged this fee.
- Account Fees: Plain and simple, these are maintenance fees. They vary by broker.
- Purchase Fees: These fees are similar to sales load commissions, but they’re paid to the fund, not the broker.
And these are typical annual mutual fund operating expenses:
- Management Fees: These are paid out of fund assets for the fund’s investment advisor. They cover the management of the fund’s portfolio.
- Distribution (12b-1) Fees: These are applied to a fund’s costs for marketing, advertising, printing, etc. Luckily, FINRA places a 0.75% cap on these fees.
- Other Expenses: This category encompasses all other fees you may have to pay — including custodial fees, legal and accounting expenses, administration costs, etc.
Pay close attention to the fees your stock broker is charging you — a high-yield fund with high fees could be earning you less retirement money over the long run than a fee with lesser returns but smaller fees. Read more about how to invest in mutual funds here.
Are Mutual Funds a Good Investment?
Mutual funds are a popular investment because they provide diversification. However, many investors prefer passive investing to active investing and therefore steer clear of mutual funds. This is because actively-managed funds generally charge high fees, and mutual funds often have expense ratios anywhere from 0.25% to 1.5% per year.
In contrast, investing in ETFs or index funds are passive investments that still provide investors with diversification.
How Much Money Do You Need To Invest In Mutual Funds?
Another aspect of mutual fund investing worth considering are minimum requirements. Funds often have minimum investment requirements anywhere from $500 to $5,000 or more depending on the fund. If you’re investing with little money, fractional shares or ETFs could be a better choice.
Mutual funds provide investors with a simple way to diversify their portfolios. And not all funds have very high management expense ratios.
That said, it’s worth considering how mutual funds fit into your overall portfolio. ETFs and index funds can also provide diversification, and you can also explore stock investing as well.
But if you decide to invest in mutual funds, make sure you use a broker that doesn’t charge high fees and has plenty of funds to choose from.