Best Brokers for Mutual Funds for October 2023

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 platforms for mutual funds to help you decide which is the best fit for you.

Our Best Brokers for Mutual Funds 2023

• Best Mutual Fund Broker for Beginners: Fidelity
• Best Mutual Fund Broker for Low Fees: J.P. Morgan Self-Directed Investing
• Best Mutual Fund Broker for Fund Selection: Interactive Brokers
• Best Mutual Fund Broker for Diverse Investment Needs: E*TRADE

INVESTMENT AND INSURANCE PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

What are mutual funds?

A mutual fund is an investment vehicle that pools investors' money together to invest in a common purpose.

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

Should you buy mutual funds through a broker?

It's important to point out there are two ways you can invest in mutual funds. You can open a brokerage account through one of the best brokers for mutual funds. If you're 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 operate them. For example, let's say you want to invest in a T. Rowe Price mutual fund. You can simply open an account with T. Rowe Price and buy your mutual funds through the company.

There are some advantages to buying your mutual funds directly, and the biggest is avoiding commissions. Sure, many of the best brokers for mutual funds offer a list of mutual funds on a no-transaction-fee (NTF) basis. But there's no guarantee the fund you want to buy will be on the list. Buying directly typically avoids any type of transaction fees.

On the other hand, there is value in keeping all of your investments in one place. Many of the best brokers to invest in mutual funds have thousands of NTF funds. You can also buy and sell different types of stocks, bonds, and ETFs in a brokerage account. The best stock brokers often have other value-adding 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 customers can invest in, including index funds and actively managed funds. With low 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 also let you invest in exchange-traded funds (ETFs), a newer way for investors to mutually benefit from bundled funds. Rather than a fund that actively invests pooled money into 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 take away the need to do extensive stock research. Mutual fund investing also adds portfolio diversification. After all, many mutual funds invest in hundreds, or even thousands, of different stocks or bonds. Your performance won't be too dependent on any single one.

Who should invest in mutual funds?

Mutual fund investing is best suited for:

• Investors who want to leave the research and evaluation of stocks to someone else.
• Investors who don't want to constantly monitor their investments. Mutual funds are designed for investors with a set-it-and-forget-it mindset.
• Investors who want an all-in-one portfolio of stocks and don't want too much of their money dependent on any one company's performance.
• Investors who don't want to worry about intraday fluctuations in the value of their investments, as mutual funds only trade once a day.

Some people see robo-advisors as a cheaper alternative to mutual funds, as they're also a hands-off 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 choose investments they expect to produce the best returns for investors.
• Passively managed: These funds aim to track a certain benchmark index, such as the S&P 500.

Although these are both technically mutual funds, people often refer to actively managed funds as "mutual funds" and passively managed funds as "index funds."

The aim of actively managed funds is to beat the performance of an index. Fund managers make decisions to buy and sell stocks with the money in a fund based on their expectations of a stock's (i.e., a company's) performance.

That's not to say actively managed mutual funds will always beat their respective benchmarks. In fact, numerous studies have shown the majority of actively managed mutual funds don't do any better than index funds. Some have excellent track records, but it's important to do your homework before investing.

Passively managed funds are also referred to as "index funds" because they are set up to mimic the performance of an entire stock index. For example, an S&P 500 index fund would own the stocks of all 500 companies in that index, in weightings that would produce returns that match those of the index.

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

How much do mutual funds cost?

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

Commissions

Most brokers have done away with commissions for stock trades, but that's not the case for mutual funds. And the costs can vary dramatically. Our best brokers for mutual funds 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 funds on an NTF basis. This means you won't have to pay commissions as long as the fund you want is on your broker's NTF list. Many brokers easily offer thousands of NTF mutual funds. This should be a top priority when selecting which broker is best for mutual fund investing.

Sales charges

Also known as "loads," some mutual funds charge an additional fee when you buy or sell. You may get charged a percentage of the purchase amount when buying, known as a front-end load. Others charge a percentage when you sell, known as a back-end load. Both are becoming less common. It's generally a good idea to avoid funds with sales charges, as there are thousands of great mutual funds without them. Brokers typically have a search or screener function that allows you to filter for "no-load" mutual funds.

Expense ratio

This is the ongoing cost of mutual fund investing. 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 have $10,000 invested in the fund, you'll pay $100 in fees each year. To be clear, you don't directly pay mutual fund fees (you won't get a bill). Rather, funds collect their fees from the pool of money they manage.

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

How to invest in mutual funds

The way you invest in mutual funds works a bit differently than investing in stocks. Specifically, mutual funds don't trade continuously. They price once per day after the market closes, and orders are processed overnight.

To buy a mutual fund:

1. Enter the fund's ticker symbol on your broker's page. (Mutual funds have five-letter ticker symbols.) If you don't know the correct symbol for your desired mutual fund, you can look it up by entering the fund's name.
2. Place your order. You'll be taken to your broker's order page. Rather than choosing a number of shares to buy, you enter the dollar amount you'd like to invest.

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

Each fund has an order cutoff time (4 p.m. EST is typical), and orders placed before that will be processed on 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 funds through some investment apps. These often come with lower fees and lower account minimums than traditional stock brokers, so they might be an easier place to start if you're new to investing or just want to open a simple account, like an IRA.