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 +0.79%) 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%.
Like many passive index funds, this Vanguard fund is designed to be tax-efficient, with a low 2.8% turnover rate, which helps minimize taxable distributions. The expense ratio of just 0.09% also keeps costs low, making it one of the most affordable global stock funds available.
Over the past five years, this index fund has delivered an annualized return of 12.73%, benefiting from strong U.S. market performance while still providing broad international diversification. However, like most Vanguard Admiral Shares funds, it requires a $3,000 minimum investment, which may be a barrier for some investors.
6. Vanguard Wellington Fund Investor Shares (VWELX)
The Vanguard Wellington Fund Investor Shares (VWELX +0.58%) is one of the most resilient, time-tested mutual funds available. Launched in 1929, it has navigated almost a century of market cycles, delivering an 8.36% annualized return since inception.
This fund has survived and thrived through major financial crises, including the Great Depression, Black Monday in 1987, the dot-com bubble, the Great Recession, and the COVID-19 market crash.
Unlike traditional index funds, this Vanguard fund is actively managed and does not track a benchmark. Instead, it holds a carefully selected portfolio, with two-thirds comprising high-quality dividend-paying stocks screened for value and stability and one-third made up of investment-grade bonds, providing a balance of growth and income.
This allocation helps the fund weather market downturns better than pure stock funds, making it a strong choice for investors seeking lower volatility without sacrificing returns.
That said, this mutual fund isn't the most tax-efficient option due to its mix of stocks and bonds, which can generate taxable distributions. And although its 0.25% expense ratio is reasonable for an actively managed fund, it's higher than low-cost index funds.
Should I invest in mutual funds?
Whether you should invest in mutual funds depends on the options available to you. If you're investing through a 401(k) plan, mutual funds might be your only choice since many employer-sponsored plans don't offer ETFs. In that case, mutual funds can still be a solid option for building long-term wealth.
If you're investing in a self-directed brokerage account, there's usually no compelling reason to choose mutual funds over ETFs, unless there's a specific strategy that appeals to you or you find a fund with ultra-low fees, like Fidelity's zero-cost index funds.
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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.