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Best Mutual Funds to Buy in 2021

The financial markets offer different types of tradable products, including stocks, bonds, mutual funds, and ETFs. While stocks and bonds offer investors exposure to individual assets, ETFs and mutual funds offer a portfolio of assets. Many investors, especially small-scale investors, find mutual funds an easy way to have a diversified portfolio with their small capital.

In this guide, we'll take you through what a mutual fund is and how you can buy one. You will also get to see our top picks for the best mutual funds to buy.

Where Can I Trade Mutual Funds?

Mutual funds can be traded directly with the company that issued the fund or via an online multi-asset broker. If you are buying from a mutual fund company, you may not find funds issued by other companies. However, many online brokers allow you to trade different mutual funds within your standard trading account. Some brokers in the UK even offer mutual funds on tax-efficient trading accounts such as a Stock & Shares ISA or Self-Invested Pension Plan (SIPP) in the UK.

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What is a Mutual Fund?

A mutual fund is a financial investment product that pools money from many investors to invest in various financial assets, which could be stocks, bonds, and other securities. This investment portfolio, which consists of a basket of different assets, is then traded as a single investment unit. 

So, when you buy a mutual fund, you own units (shares) of the mutual fund and participate proportionally in the gains or losses of the fund. The price of each mutual fund share is referred to as its net asset value (NAV), which is equal to the total value of all the securities owned by the fund divided by the number of shares in the fund. Mutual fund shares can only be bought or sold once per day, mostly at the close of the market when the share prices are adjusted to the price for the day. 

Mutual funds are created and actively managed by professional money managers. The fund’s manager allocates the fund’s assets in a way that matches the investment objectives stated in its prospectus. Thus, mutual funds offer small or individual investors the opportunity to invest in professionally managed portfolios of equities, bonds, and other securities.

Invest In Mutual Funds in 3 Steps

1

Open a trading account

You can purchase a mutual fund from an online multi-asset broker or directly from the company that issued the mutual fund. The benefit of buying directly from the mutual fund provider is that they may not charge trading fees, but a broker will let you buy various funds from various mutual fund providers.

2

Choose Mutual funds

If you decide to buy through an online broker, you will see a list of different mutual funds you can buy on the broker’s platform. Some platforms will even let you filter the list to find mutual funds from a particular provider or with low fees.

3

Place your trade

When you’ve found the mutual funds you want to buy, you can place your buy order. While you can place your order at any time during the day, it won’t be actioned until the fund prices are adjusted at the market close.

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:

  1. Vanguard 500 Index Fund (VFIAX)
  2. Vanguard Health Care Fund (VGHCX)
  3. Fidelity Select Consumer Staples Portfolio (FDFAX)
  4. Fidelity Magellan (FMAGX)
  5. Fidelity Select Health Care (FSPHX)
  6. BlackRock Health Sciences Opportunities Investor A (SHSAX)
  7. AllianzGI Technology Institutional (DRGTX)
  8. T. Rowe Price Communications & Technology Investor (PRMTX)
  9. Columbia Seligman Communications & Information A (SLMCX, $77.70)
  10. Columbia Acorn Institutional (ACRNX)

1. Vanguard 500 Index Fund (VFIAX)

VFIAX tracks the performance of the S&P 500 index that measures the investment return of large-cap stocks. The fund invests all of its assets in 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 at the time of writing. VFIAX returned 9.74% in the three months to February 2021. 

2. 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. In February 2021, VGHCX’s total AUM was 49.11bn and the fund's shares have slid by 1.67% in the previous three months. 

3. 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. In February 2021, FDFAX’s total AUM was $1.48bn and the fund had returned 11.57% year-to-date.

4. 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 stands at $22.1bn at the time of writing, while the average annual return of the fund since its inception is 15.74%. 

5. 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, high-yield sub-industries, such as biotech and healthcare equipment. At the time of writing, the fund has 20% of its assets invested in foreign companies, and the total AUM is $10.18bn. The fund returned 14.8% in 2020.

Expert Tip on Investing in Mutual Funds

Make sure you read the fund's prospectus before investing, to ensure that its objectives match your investing goals. The prospectus tells you what kinds of assets the fund invests in and how diversified it is. Diversified funds are safer than ones that concentrate on one asset class or market.
- VantagePointTrading Press Team VantagePointTrading Press Team

Why Trade Mutual Funds?

There are a variety of reasons why you may want to trade mutual funds:

  • Diversified portfolio: Mutual funds spread their investments between many companies across many sectors or may even invest across different asset classes and markets. This reduces the impact of volatility on the portfolio.
  • Dividend reinvestment: When dividends and other interest income are declared for the fund, you can choose to automatically reinvest the income to purchase additional shares in the fund, which ultimately helps your investment to grow faster.
  • 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

  1. When you invest in shares, you invest in a single company. However, when you invest in mutual funds, you are investing in a basket of assets, which can be different stocks or a combination of securities from different asset classes, including bonds, stocks, and commodities.

  2. Both mutual funds and ETFs (exchange-traded funds) are baskets of assets, but while ETFs are traded on an exchange during market hours (just like stocks), funds can only be bought or sold once per day at that day’s price.

  3. Yes, mutual funds are a good investment right now because they offer low risks, lower transaction costs, and long-term profits. But you have to be sure that the mutual funds you buy meet your investment objectives.

  4. Anybody of legal age can invest in mutual funds. Mutual funds are one investment that is suitable for anyone with a conservative investment goal. However, aggressive investors may not find it appealing.

  5. Yes, mutual funds are a very good investment for beginners. Mutual funds offer an easy way to get a diversified portfolio with small capital.

  6. Yes, you can buy mutual funds from multi-asset online brokers that include the product among their security offerings. Online brokers give you access to many different mutual funds from one platform, but they may charge trading commissions, unlike if you’re buying directly from the company that created the fund.

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