You know you want to purchase mutual funds to plan for your retirement or another big goal. But deciding which online platform is best for mutual fund investments can be confusing.
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Best online brokers for mutual funds in June 2023
First things first: Personal finance experts recommend buying the funds directly from the mutual fund company rather than through a brokerage account. Why? You’ll save money on fees. The exception, of course, is if that brokerage account is through the mutual fund company. For example: Buy Fidelity funds from Fidelity Investments and Vanguard funds from The Vanguard Group and so on.
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Next, you’ll want to look for what kind of tools the broker makes available — what mutual funds are on its platform, what the broker charges, including early redemption fees, and other factors. On costs, expect to pay a higher expense ratio for actively managed accounts — which are managed by a person or a group of people who are picking the investments and trying to beat the market — versus a passive index fund, which is built to replicate the performance of a specific market. Considering these factors should help you determine which broker is your best choice for mutual fund investing.
Here are the best online brokers for mutual funds:
- Fidelity Investments
- Charles Schwab
- E-Trade Financial
- Ally Invest
- The Vanguard Group
- TD Ameritrade
- Interactive Brokers
- Merrill Edge
Overview: Top online brokers for mutual funds in June 2023
Fidelity Investments
Fidelity Investments launched four zero-fee funds in 2018 — making it the first financial company to offer mutual funds with zero expense ratios in the ongoing price war. The funds are: Fidelity Zero Total Market Index Fund, Fidelity Zero International Index Fund, Fidelity Zero Large Cap Index Fund and Fidelity Zero Extended Market Index Fund. And all Fidelity funds come without transaction fees as long as you hold the fund for at least 60 days.
The Boston-based retirement giant, which has long had a prominent name in the mutual fund space, also offers nearly 3,400 no-transaction-fee mutual funds. Using the long-established broker, you’ll get access to a ton of research, screening tools and its namesake mutual funds, such as its iconic Magellan fund. You can also port all of your financial accounts onto its so-called full-view feature to understand all of your finances in one place, much as you might on a budgeting app like Mint.
- Minimum amount to open an account: $0
- Standard pricing: Free for Fidelity funds and other non-transaction-fee funds, and $49.95 on the buy and $0 to sell on non-Fidelity transaction-fee funds
- Mutual fund highlight: Offers four zero-fee index funds, nearly 3,400 no-transaction-fee mutual funds
Charles Schwab
Charles Schwab is credited for pioneering low-cost investing in the 1970s, and the company’s pricing remains competitive to this day. At Charles Schwab, you’ll have a wide selection of mutual funds that don’t charge sales commissions — more than 4,300 no-load, no-transaction-fee mutual funds.
However, the fee is steep if you move outside of those funds: The broker can charge up to $74.95. Like many rivals, Schwab does not require a minimum to open an account or get started. Schwab’s stellar customer service, robust brokerage platform, and wealth of research make it a solid pick.
- Minimum amount to open an account: $0
- Standard pricing: $0 on non-transaction-fee funds; otherwise up to $74.95 when buying others funds
- Mutual fund highlight: More than 4,300 no-load, no-transaction-fee mutual funds
E-Trade Financial
E-Trade makes available more than 6,500 no-load, no-transaction-fee mutual funds. In late 2022, E-Trade said it would eliminate commissions and early redemption fees for all online mutual fund trades as part of its effort to boost the value of its wealth management offering. Morgan Stanley acquired E-Trade in 2020 as it looked to diversify its business away from traditional investment banking.
At E-Trade, you’ll also have access to research and tools to help you make investment decisions. E-Trade’s screener will help you quickly find what you’re looking for, with the ability to search funds by expense ratio, performance, yield and many other categories. Click a fund’s link and you’ll get detailed info on it, including its top holdings, costs and annual performance.
- Minimum amount to open an account: $0
- Standard pricing: $0
- Mutual fund highlight: More than 6,500 no-load, no-transaction-fee mutual funds
Ally Invest
Ally Invest offers access to more than 12,000 mutual funds. The broker cut its commission on no-load mutual funds to $0 from $9.95 per trade in 2023. The move makes Ally Invest a top broker choice for investors who are particularly interested in mutual funds.
As a financial institution without branches, Ally focuses a lot of its attention on its digital experience. Ally Invest’s sister brand, Ally Bank, wins many accolades and the company is also well regarded for its customer service.
- Minimum amount to open an account: $0
- Standard pricing: $0 on no-load funds
- Mutual fund highlight: The mutual fund commission was recently cut to $0 from $9.95
Vanguard
Formed in 1975, The Vanguard Group has long been celebrated for its low-cost index funds. Its legendary founder, the late John C. Bogle, is credited with launching the first index fund for retail investors. That fund is now called the Vanguard 500 Index Fund.
As a Vanguard client, you won’t pay transaction fees for any of the 160 Vanguard mutual funds. The firm also offers more than 3,000 no-transaction-fee mutual funds for non-Vanguard funds. You’ll pay $8 to $20 per trade for the other funds available on its platform, though accounts with more than $1 million in Vanguard funds receive their first 25 trades for free.
Even though it is known for index investing, Vanguard also offers actively managed funds.
- Minimum amount to open a brokerage account: $0
- Standard pricing: Free for family funds and other no-transaction-fee funds; $0-$20 for others, depending on Vanguard assets
- Mutual fund highlight: Long regarded for its low-cost index funds
TD Ameritrade
With nearly 3,700 mutual funds available without a transaction fee, TD Ameritrade allows investors excellent access to a range of no-cost choices. The broker’s screening tool will help you sift through this wealth of funds, though it’s not as helpful at separating the wheat from the chaff as it could be. However, each fund’s page does offer a comprehensive view of the security, including performance data across multiple periods, top holdings, and other critical fund information.
Still, TD Ameritrade’s premier list screen does help you narrow your focus to low-cost no-fee mutual funds by using Morningstar’s data, which is updated quarterly. If you’re looking for a wide selection of other investment types, TD Ameritrade has you covered, too. Besides the usual run of stocks, bonds, and funds, the broker has futures and forex, for a well-rounded offering.
(Charles Schwab has purchased TD Ameritrade, and the two companies expect to complete integration between April and September 2023.)
- Minimum amount to open a brokerage account: $0
- Standard pricing: $0 on no-transaction-fee funds and load funds; otherwise, $49.95 to $74.95 for no-load funds
- Mutual fund highlight: Nearly 3,700 no-load, no-transaction-fee mutual funds
Interactive Brokers
It can be easy to forget that Interactive Brokers, which typically caters to more advanced traders and professionals, also offers something that’s more popular among regular investors – about 19,000 funds with no transaction fee! That’s among more than 46,000 funds offered overall, while the costs for other fee funds is up to $14.95 per trade and international fee funds cost 4.95 euros or the equivalent.
The broker expanded its mutual-fund platform in 2020, and now offers the largest single place for investors to find no-load mutual funds. That’s on top of the ability to trade in 33 countries in a range of asset classes (stocks, bonds, and more), making Interactive Brokers a true “go anywhere” broker.
- Minimum amount to open a brokerage account: $0
- Standard pricing: $0 for no-transaction-fee funds; otherwise, 3 percent of purchase value, up to $14.95
- Mutual fund highlight: About 19,000 no-transaction-fee mutual funds
Merrill Edge
Merrill Edge offers more than 800 no-transaction-fee funds and you’ll be able to sift through these funds with Merrill’s screener or use the Select Funds choices to craft your portfolio from dozens of choices across company size and style. Merrill’s page for each fund clearly lays out its vital statistics, including its Morningstar rating, top holdings and annualized performance.
And you can make your mutual fund investments feel like your 401(k) deductions by using Merrill’s automatic investing plan. Pick your amount and schedule, and you’ll be buying funds without even having to worry about it, and you can change the plan at any time.
- Minimum amount to open a brokerage account: $0
- Standard pricing: $0 for no-transaction-fee or load-waived funds; $19.95 for transaction-fee funds
- Mutual fund highlight: More than 800 no-transaction-fee funds
What is a mutual fund?
A mutual fund is a way to own a share in a larger investment portfolio that is owned jointly with other investors. Mutual funds invest in many different companies, sometimes hundreds or even thousands of them. By buying one share of the fund, you own a small stake in all its holdings. So a mutual fund gives you diversification, reducing your risk compared to buying a few stocks.
A mutual fund’s share price changes based on the net asset value of its holdings. When its stocks or other assets rise in value, the value of the fund rises as well. The net asset value is calculated after the close of each market day, and only then can investors buy and sell a fund.
The mutual fund charges an expense ratio for its services, and this fee covers the costs of running the fund and provides a profit to the fund management company.
Generally, you can buy and sell funds from whichever broker you prefer, though a fund family such as Vanguard may not always be listed on all brokers’ platforms.
Should you invest actively or passively with mutual funds?
By buying a mutual fund, you’re hiring a fund manager to manage your money, so you should allow the manager to do that job. Research shows that, on average, passive investments actually do better than active ones, and if you’re not an expert, it makes little sense to try to outguess the pros.
Mutual funds can be both actively managed and passively managed, though they’re typically associated with the former. Active managers try to beat the market by finding undervalued stocks and by buying and selling at opportune moments. Because they’re actively managed, these mutual funds tend to charge a higher expense ratio.
In contrast, passively managed funds, like index funds, simply copy an index, often the Standard & Poor’s 500 index. They’re just trying to equal the performance of the index. Because of this approach, passively managed funds tend to charge lower fees than active funds.
In addition, many mutual funds charge early redemption fees if you move in and out of them within a short period of time, often 30 days or less. That’s an additional incentive to invest passively.
Who should invest in mutual funds?
Mutual funds are a great choice for investors of any kind, beginner to advanced. They offer a way to easily diversify your investment, and you can do so at a very low cost. Those are two reasons they’re so often used in popular retirement vehicles such as 401(k) accounts or IRAs.
A well-diversified mutual fund can be great for investors who are just starting out and know little about investing. In fact, investing legend Warren Buffett has long recommended that investors buy index funds based on the S&P 500 index, which can be done easily using mutual funds.
How much money do you need to invest in a mutual fund?
Mutual funds may require an initial minimum amount when you’re first buying a fund, often $2,500 to $3,000. After that, you may need only modest amounts to continue investing in the fund. So it’s easier to continue buying into the fund with regular contributions.
However, if you’re buying within a 401(k), those minimums are typically waived, and you can deposit whatever amount you want from each paycheck into the fund.
Finally, it’s worth pointing out that some mutual funds charge a sales load, or commission, when you buy into the fund. These can be easily avoided by looking for “no load” mutual funds. The sales commission is money that should go into your pocket, not into the fund company’s.