Mutual funds are pooled investment vehicles that collect money from many investors and invest it in a diversified portfolio of stocks, bonds, or other assets. Despite the rise of exchange-traded funds (ETFs), mutual funds remain a staple investment option, with $25.5 trillion in assets under management (AUM) in 2023, according to Statista.
These funds continue to play a key role in retirement planning, particularly in workplace plans such as 401(k)s, where they remain a cornerstone of long-term investing. Mutual funds run the gamut from tracking stock market indexes to following specific sectors, such as real estate, technology, or even cryptocurrency.
However, like any other investment product, there are both good and bad mutual funds. Understanding how they work, how to invest in them, their advantages, and potential drawbacks is essential for investors looking to make informed financial decisions.
6 top mutual funds for 2025
With thousands of mutual funds on the market, narrowing down the best options can be overwhelming. To help, we've selected six top mutual funds for 2025 based on key factors that make them attractive for long-term investors. Each fund on this list has been chosen for its low investment minimums, low expense ratios, long track record, high diversification, and strong historical performance.
1. Fidelity 500 Index Fund (FXAIX)
The Fidelity 500 Index Fund (FXAIX +0.00%) is one of the best low-cost mutual funds for broad market exposure. Launched in 1988, this fund tracks the S&P 500 index, offering investors a simple, diversified way to invest in America's largest companies.
One of this fund's biggest advantages is its extremely low expense ratio of just 0.015%, making it one of the cheapest index funds available. It also has no minimum investment requirement, allowing investors of all levels to participate.
Another reason to like this Fidelity fund is its tax efficiency, thanks to its low 3% turnover rate, which means it rarely buys and sells stocks, thereby helping to reduce taxable capital gains distributions. Over the last 10 years, this mutual fund has delivered an annualized return of 13.63%.
Potential benefits of mutual funds:
- Access to professional portfolio management without the need to pick individual securities
- Built-in diversification, spreading risk across many holdings in one fund
- Automatic dividend reinvestment to compound returns over time
- Lower trading costs for long-term investors, since there's no need for frequent buying or selling
- Wide range of investment strategies, from conservative bond funds to aggressive stock funds
Potential risks of mutual funds:
- Higher expense ratios compared to ETFs, which can erode returns over time
- Less tax efficiency because capital gains are distributed annually, even if you didn't sell shares
- Limited trading flexibility since mutual funds are priced only once per day after markets close
In most cases, ETFs provide similar market exposure with added benefits, including intraday trading flexibility, lower expense ratios, and better tax efficiency. For investors who prioritize cost and flexibility, ETFs are often the better choice.