Best Mutual Fund Companies

Mutual funds are a type of investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds and other assets. Investors buy shares in the fund, which represent their portion of ownership.

Mutual funds are professionally managed by fund managers and offer a way to invest in a variety of asset classes without needing a lot of money to start. (While there are some funds with high minimum investments, there are also funds that require no minimum investment.)

Types of mutual funds

There are several types of mutual funds, including equity, fixed-income, balanced and specialty funds. When choosing a mutual fund, ensure the type aligns with your investment goals, risk tolerance and timeframe.

• Equity funds, the largest group of mutual funds, are made up of stocks and can provide capital growth, steady dividends or both, depending on which stocks the fund is invested in.
• Fixed-income funds, also called income funds or bond funds, consist of investments in both government bonds and private companies. They are designed to provide regular income to shareholders and typically offer a higher yield than certificates of deposit (CDs) or money market funds, but have varied risk levels.
• Money market funds consist of short-term debt instruments, like Treasury bills, and are one of the safest mutual fund options. They usually offer a larger return than most savings accounts but a smaller return than many CDs.
• Index funds are referred to as passively managed funds because they include the same investments as the market and are thus not actively managed. There are many different indexes with different profiles, such as large-cap stock, small-cap stock, growth stock, value stock and international stock.

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Expect to pay fees for the service of having your assets professionally managed, as well as administrative costs. In 2022, the average expense ratio for both actively managed and index equity mutual funds was 0.44%, according to the Investment Company Institute.

Loads vs. no-load funds

A “load” is a sales charge or fee imposed by certain mutual funds when you buy or sell shares of the fund. It is a specific fee separate from the transaction cost.

Not all mutual funds charge loads, and these are known as no-load funds. However, no-load funds can still charge fees that are not sale loads, as well as operating charges.

Other loads to know about include:

• Front-end loads: Front-end load funds charge investors at the time they purchase shares in the mutual fund.
• Back-end loads: Funds with a back-end load charge shareholders when they sell shares in the fund. In some cases, a back-end load is only charged if investors sell shares within a certain timeframe.
• Level loads: Also known as a 12b-1 fee, a level load is an ongoing annual fee charged by certain mutual funds to cover distribution and marketing expenses.

Professional management can be both an advantage and a drawback of mutual funds. Mutual funds allow smaller investors to access professional management in ways that would likely be cost-prohibitive outside the fund; however, some advisors debate whether professionals are any better at choosing investments than laypeople.

Look at the fund’s mandate and the management tenure to fully evaluate the benefits of the fund’s management.

• Mandate: You don’t want to buy a fund focused on a single industry when you want a diversified portfolio. To ensure a fund is being managed in a way that suits your goals, read the fund’s mandate, then look at its holdings to see if the managers are fulfilling that mandate in their investments.
• Management tenure: Find out how long the fund’s managers have been in place. This information should be in the fund’s prospectus, but you can also ask any salesperson. Ideally, the manager will have been in place for several years with a successful track record.

» MORE: How to choose a financial advisor

Mutual funds allow individual investors to pool their money and take advantage of professional management while diversifying their portfolios across various asset classes. Taking time to review mutual fund companies can help you discover which company has the right costs and opportunities to fit your investment goals.