Mutual funds are widely regarded as safe havens, suitable for investors who do not want the hassle that comes with everyday trading or active investing. They are also relatively cheaper to invest in than other investment vehicles such as equities or bonds. With the U.S. market experiencing its longest bullish run in history, choosing the best mutual funds to trade may seem a bit tricky because everybody’s record looks great. Having this in mind, we perused the records of all stock mutual funds and created a list of the best mutual funds to trade based on fees, returns, diversification of assets, and balance sheet.
What is a mutual fund?
A mutual fund is a financial investment product where investors pool their resources into a collective fund and invest in various financial assets for returns. It is a basket of many assets traded as an investment unit. The fund is usually created by a money manager or institution who actively manages the account and takes financial decisions to achieve the fund's investment goals.
Interestingly, mutual funds have achieved a higher average return rate on capital than other investment and savings vehicles, such as Treasury bills and bonds. Mutual funds that have a diverse range of assets spread across different sectors are ideal for weathering volatility and a weak economy in the long term.
Invest in mutual funds in 3 steps
Open a trading account
Opening a trading account is the first step towards trading mutual funds. There are so many trading platforms available that offer investors a variety of choices and features. You can draw up a comparison list and make your choice based on which account has features and tools that support your investment goals.
Choose Mutual funds
The number of mutual funds available can be overwhelming to a beginner investor. Clarifying why you are investing limits your choices and makes it possible to you to select a few mutual funds. Since mutual funds are generally a haven for capital preservation and long-term play, you should go for a mutual fund that has a balanced portfolio allocation spread across different sectors.
Place your trade
Placing your trade may seem easy with the click of a button, but experienced traders always plan their trade. Make sure you have an entry and exit target. You should know when to buy and how long you intend to hold. Above all, have a well-defined strategy and plan.
Where can I trade mutual funds?
Mutual funds are traded in monetary amounts, unlike stocks, which are bought in shares. They can be traded directly from a bank, brokerage firm, or mutual fund company. You would need to open a mutual funds account with either of these institutions to start trading. Based on fees, user experience, and customer service, we have shortlisted our top 3 selected brokers in the table below.
Best mutual funds to buy now
These are the best mutual funds to buy in 2021 based on returns, asset diversification, and current market sentiment. The top 10 mutual funds to buy now include:
- Vanguard 500 Index Fund (VFIAX)
- Vanguard Health Care Fund (VGHCX)
- Fidelity Select Consumer Staples Portfolio (FDFAX)
- Fidelity Magellan (FMAGX)
- Fidelity Select Health Care (FSPHX)
- BlackRock Health Sciences Opportunities Investor A (SHSAX)
- AllianzGI Technology Institutional (DRGTX)
- T. Rowe Price Communications & Technology Investor (PRMTX)
- Columbia Seligman Communications & Information A (SLMCX, $77.70)
- Columbia Acorn Institutional (ACRNX)
Vanguard 500 Index Fund (VFIAX)
VFIAX tracks the performance of the S&P 500 index that measures the investment return of large-capitalization stocks. The fund invests all of its assets on the stocks that make up the index, holding approximately the same weighted proportion as the index. The fund’s total asset under management (AUM) is $630.67bn. VFIAX has returned 9.74% in the last three months.
Vanguard Health Care Fund (VGHCX)
VGHCX invests about 80% of its assets in stocks of healthcare companies such as pharmaceutical firms, medical supply firms, and health facilities. The fund also invests a substantial part of its assets in foreign stocks. VGHCX’s total AUM is 49.11bn, while the fund's shares have slid by 1.67% in the last three months.
Fidelity Select Consumer Staples Portfolio (FDFAX)
FDFAX invests in consumer staples companies. These are companies that produce, sell, and distribute products and services that consumers would need regardless of economic condition. The fund primarily invests in common stocks and uses fundamental analytic tools to select investments. FDFAX’s total AUM is $1.48bn, while the fund has returned 11.57% year-to-date.
Fidelity Magellan (FMAGX)
Fidelity Magellan was established in 1963 and is one of the best-known mutual funds on the market. The fund invests in common stocks using fundamental analysis. Stocks in the fund’s holdings include Apple, Microsoft, Amazon, and Google. The fund’s total AUM currently stands at $22.1bn. The average annual return of the fund since its inception is 15.74%.
Fidelity Select Health Care (FSPHX)
FSPHX was established in 1981 and invests in securities of health care companies, with a special preference for the fast-growing sub-industries, such as biotech and healthcare equipment. The fund has 20% of its assets invested in foreign companies. FSPHX’s total AUM is $10.18bn, while the fund has returned 14.8% within the last year.
BlackRock Health Sciences Opportunities Investor A (SHSAX)
SHSAX was established in 1999 and invests in large-cap growth stocks in the health-care industry such as UnitedHealth Group, Eli Lilly, and Humana. The fund also has a portion of its assets domiciled in foreign companies. SHSAX’s total AUM currently stands at 10.6bn, while its average annual return since inception is 14.66%.
AllianzGI Technology Institutional (DRGTX)
DRGTX was created in 1995 to invest in shares of technology companies such as Apple, Twilio, PayPal, and Square. The fund also invests in derivatives and other financial instruments that are exposed to the technology sector. The fund’s total AUM currently stands at $2.5bn, while it has returned 40.9% in the last year.
T. Rowe Price Communications & Technology Investor (PRMTX)
PRMTX is a non-diversified fund that invests in technology, communications, and consumer discretionary companies. The fund has holdings in Amazon, Facebook, T-mobile, and Netflix, among others. The fund allocates 30% of its assets to tech, 30% to consumer cyclical stocks, and 18% to communications stocks. The total AUM of the fund is $10.81bn. In the last five years, PRMTX has gained an average of 15.51% a year.
Columbia Seligman Communications & Information A (SLMCX)
SLMCX is a non-diversified fund established in 1983. The fund invests in communications and information technology companies. The fund also allocates 25% of its net assets in foreign investments. The fund has holdings in companies such as Apple, Microsoft, and Micron Technology Inc. Total AUM of the fund currently stands at $9.16bn, while it has returned 36.3% in the last year.
Columbia Acorn Institutional (ACRNX)
ACRNX was established in 1970 with a value-oriented approach to investing. The fund invests in U.S. companies, though about 33% of its total assets are domiciled in foreign companies both in developed and emerging markets. The fund has holdings in Planet Fitness, Teradyne Inc, and SolarEdge Technologies. ACRNX has a total AUM of $4.9bn, while it has yielded 22.7% in the last six months.
Expert tip on investing in mutual funds
The most effective method for investing in mutual funds is anchored on fundamentals. Your choice of a mutual fund should be based on what type of companies the fund is investing its assets in. Any fund that invests in companies with an excellent track record is a viable choice
Why trade mutual funds?
There are a variety of reasons why investors should trade mutual funds:
- Diversified portfolio: Mutual funds spread their investments in many companies across many sectors. This reduces the impact of volatility on the investor’s portfolio.
- Dividend reinvestment: As dividends and other interest income are declared for the fund, investors can purchase additional shares in the fund, which ultimately grows the investment.
- Small capital requirement: Mutual funds have low investment requirements and are cheaper to manage than other types of assets. When you compare transaction costs, subscription fees, or margin costs paid to a brokerage firm or trading platform, mutual funds come off less expensive.
Frequently Asked Questions
Vanguard 500 Index Fund (VFIAX) is fine.
Yes, mutual funds are a good investment right now because they offer low risks, transaction costs, and long-term profits.
Anybody of legal age can invest in mutual funds.
When you invest in shares, you invest in a single company. However, when you invest in mutual funds, you are not restricted to shares of a particular company but also invest in other asset classes such as treasury bills and government bonds.
Mutual funds are a very good investment for beginners.
The size of the global mutual fund asset market was valued at $54.93 trillion as of 2019. The U.S. mutual fund industry is the world’s largest, with $21.3 trillion in total net assets.