Want to find out how to invest in mutual funds? Mutual funds are an investment vehicle that allow investors to save for the long term as well as benefit from fund manager expertise. Nowadays, Exchange-Traded Funds (ETFs) are considered to be a key competitive alternative to mutual funds.

Below we investigate how to invest in mutual funds online. We also look at the advantages of investing in mutual funds as well as ETFs, and review two brokers which offer ETFs at zero commission.

How to Invest in Mutual Funds/ETFs – 4 Easy Steps

The investor’s journey begins by understanding a simple distinction: mutual funds are available directly from fund providers, whereas ETFs are available with online stock brokers like eToro and Capital.com.

  • Step 1: Choose a Provider/Broker – Ensure that your fund provider or ETF broker is regulated. And watch out for fees!
  • Step 2: Research the Mutual Fund Market – Be a well-informed investor. Get to the bottom of the difference between mutual funds and ETFs.
  • Step 3: Deposit Funds – with an established online broker, depositing funds is easy: eToro accepts wire transfer, credit card and a range of online payment wallets.
  • Step 4: Buy into a Fund – how much to invest in mutual funds or ETFs? Consider multiple investments in different types of fund to diversify and spread investment risk.

Step 1: Choose a Broker for Mutual Fund/ETF Investing

Where to invest in mutual funds? The answer is simple: with a fund provider.

  • Almost half of all assets held in mutual funds globally is held by the 7,500+ mutual funds in the US.
  • The top three fund providers in the US are recognised to be Vanguard, Black Rock and State Street.

Whereas mutual funds are not available with online stock brokers, Exchange-Traded Funds (ETFs) are. And, according to data from Statista.com, ETFs have grown in popularity at a much faster rate than mutual funds:

  • 100%: the approx. rate of increase in the number of mutual funds available between 2009 and 2021.
  • 3000%: the approx. rate of increase in the number of ETFs available between 2003 and 2021.

Below we review two regulated brokers which offer zero commission on ETF trades.

1. Capital.com – Popular CFD Trading Platform Offering a Wide Range of ETFs

Capital.com offers 5,600 markets to trade across shares, ETFs, forex, commodities and indices. The broker serves 427,000 clients with offices in 9 countries. And, like eToro, Capital.com offers extensive regulation with sovereign authorities: the FCA, CySEC, FSA, NBRB and ASIC.

With Capital.com, investors interested in mutual funds may explore investing in ETFs using Contracts-For-Difference (CFDs).

Suitable for short-term trading, CFDs allow traders to go short on ETFs – which means speculating that their value will fall, rather than rise – which is very useful in bear markets.

What’s more, traders can leverage their trades up to 5:1. CFD fees apply, but no commission is charged on stock or ETF trades.

Capital.com has a good reputation for being quick off the mark with the most popular IPOs. It was quick, for example, to offer shares in EV manufacturer Rivian after its stellar IPO in 2021. Investors can buy Rivian stock with eToro and Capital.com

Like eToro, Capital.com offers a free smartphone trading app. It has achieved an average score of 4.8/5 on the Apple App Store and 4.2/5 on Google Play.

Learn more about this broker with our full Capital.com review.

Approx Number of ETFs 100+
Pricing System Spread fee and overnight fees on ETFs
Cost of Investing in S&P 500 Spread on S&P 500 ETF ‘SPY’ = 0.61%
Payment Methods  Wire transfer, credit card, Apple Pay, Worldpay and Trustly
Non-Trading Fees
No withdrawal fee, no deposit fee, variable currency conversion fees

Pros

  • Go short on ETFs
  • Leveraged trading options up to 5:1 gearing
  • Regulated: FCA, ASIC, CySEC, NBRB, FSA
  • 427,000 users
  • Informative news analysis
  • 75 technical charting indicators and tools

Cons

  • Not available in the US
  • CFDs only

80.61% of retail investor accounts lose money when trading spread bets and/or CFDs with this provider.

2. eToro - ETF Broker with Zero Commission

etoro logo

With over 28.5m customers served in its history, eToro is a full-service broker with 15 years in business. Founded in 2007, eToro pitches itself at beginners, whilst offering leveraged and short CFD trades suitable for advanced traders.

eToro offers a broad mix of assets suitable for risk-aware, diversified investing:

264 Exchange-Traded Funds (ETFs): recognized as a convenient alternative to mutual funds, ETFs allow investors to invest in stocks whilst spreading risk.

3,000+ company shares: eToro's stock selection covers 16 international stock exchanges as well as 17 sectors. Penny stocks, dividend stocks and new stocks are all available.

68 crypto coins plus crypto trading pairs: represented are all the main blockchain coins - so investors can buy Bitcoin, Ethereum, Cardano and Solana, for example. Also available are metaverse and meme coins, DeFi coins and low market cap crypto.

Indices: 16 major indices - like the S&P 500 and the FTSE 100 - are available to trade using Contracts-For-Difference.

Forex: 48 tradable pairs.

Cost-conscious investors will be happy to hear that eToro charges zero commission on stock and ETF trades for clients from most countries.

What's more, eToro offers two free ways to boost the investment experience:

CopyTrader: investors can copy certain other traders' activity for free. Each copyable trader - and there are almost 100 that specialize in ETF investing - can be reviewed on the basis of risk and past performance. Then the investor allocates funds. And the eToro software automatically uses those funds to mirror trading activity.

Smart Portfolios: 75 strategic positions available to buy into with a minimum investment of $500.

Approx Number of ETFs 260+
Pricing System ETF spread fee, and CFD fees on certain ETFs
Cost of Investing in S&P 500 Spread on S&P 500 ETF 'SPY' = 0.18%
Payment Methods Buy stocks with Paypal (Europe only), credit card, wire transfer, online payment wallets
Non-Trading Fees
Variable currency conversion fee, zero deposit fee, $5 flat withdrawal fee

Pros

  • Free eToro smartphone trading app
  • Free crypto wallet
  • Free demo account for stocks and other assets
  • 28.5m customers past and present
  • Regulated by: FCA, ASIC, CySEC, SEC
  • Smart Portfolios and CopyTrader

Cons

  • $5 flat withdrawal fee

Your capital is at risk. 78% of retail investor accounts lose money when trading CFDs with this provider.

Step 2: Research the Mutual Fund Market

With data from Statista.com, we can confirm that the number of mutual funds available globally doubled in the 2010s.

  • In 2009, there were 66,400 mutual funds available globally.
  • By 2021, there were over 131,000.

131,000 funds to choose from? That's quite some researching the investor is faced with!

Some investors limit their research to finding out how to invest in mutual funds in the US. That is because the US dominates the mutual fund market, with roughly 7,500 funds accounting for 40% of all global funds under management.

  • Investors from other countries may invest in US funds.
  • US fund providers operate funds based on assets inside and outside the US.

What is a Mutual Fund?

The aim of all mutual funds is to reduce investment risk by investing in many assets at once.

An investor might want to buy Apple shares, for example. When we look at investing in mutual funds vs. stocks individually, risk is the issue. It is far less risky to buy Apple shares along with almost 500 other large-cap shares - as is possible with a US large-cap tracker fund. Diversification spreads risk.

  • A mutual fund pools investment from individual investors and then invests in a strategic portfolio.
  • This portfolio features a stock selection chosen by a professional fund manager.
  • Investors often receive distributions (as they would with dividend stocks). If the fund is classed as an 'accumulation' fund, these distributions will be automatically re-invested.
  • Investors buy into the fund directly with the fund provider.

What Types of Mutual Funds are there?

Analysts sometimes organise mutual funds into four main types:

1) Money Market Funds

These are the lowest-risk option. These funds are classed as fixed-income, which means the fund pays out regular distributions, but may not appreciate in capital worth. Money market funds invest in high-quality debt and aim to return 1%-3% interest a year. They are intended for retirement savers with virtually no appetite for risk.

2) Bond Funds

A fixed income product, a bond fund invests in bonds only. Bond funds are considered to be less risky than stock funds. But the risk rating of bonds varies enormously, from Treasury bonds to junk bonds, so a bond fund is not necessarily entirely low-risk.

3) Stock Funds

Probably the most well-known form of mutual fund, stock funds invest in stocks only. The most popular form of stock funds are index funds, which track an existing index. This is because a) indices tend to rise in value over time and b) following an index is less costly than making innovative stock selections.

4) Target Date Funds

Aimed at retirement planners, target date funds change the exposure of the holder over time to reduce risk as they near retirement. These funds mix equities (for long-term growth) with inflation-protecting REITs and commodities as well as fixed income assets like US government bonds.

How does Investing in Mutual Funds Work?

Mutual fund investing works best for investors who want to lock money away for the long-term. An investor might be figuring out, for example, how to invest $20k for retirement. Mutual funds would be an obvious primary option.

Mutual Funds vs. ETFs

Mutual funds are considered to be less flexible than ETFs (Exchange-Traded Funds). And figuring out how to trade ETFs is easy, because online brokers supply them. With a mutual fund, on the other hand, the investor has to contact the fund provider directly and buy into a fund - as well as often pay account fees.

Mutual funds with no minimum investment are few and far between, and a minimum holding period sometimes applies. ETFs, though, do not require a minimum investment. And ETF shares may be traded in normal trading hours as if they were normal shares.

Most of the most popular trading apps stipulate an investment minimum; with broker eToro, it is $10 for shares and ETFs.

How to Find the Most Popular Mutual Funds to Invest in?

Nowadays the norm is to invest in mutual funds online.

To track down the most popular mutual funds, simply use a search engine. We recommend searching for 'most popular mutual funds.' Alternatively, you could also read our guide on how to invest according to Reddit.

The investor's research will be much assisted by the fact that there are three recognized leaders in fund provision. All are based in the US:

Black Rock

The world's largest asset manager, Black Rock is based in New York, US. It has roughly $10 trillion under management.

The Vanguard Group

Founded by the inventor of index funds, John Bogle, Vanguard is based in Pennsylvania, US. The firm has roughly $7 trillion under management.

State Street

The second-oldest bank in the US, State Street has $3.9 trillion under management and acts as custodian/administrator a for further $43 trillion+.

5 Popular Mutual Funds to Watch Right Now

The mutual funds that have shown the best returns over the last 5 years tend to be ones which look for steady long-term growth from baskets of large-cap US companies - sometimes following large-cap indices similar to the S&P 500 Index.

  • The Pax Large Cap Fund Individual Investor Class (PAXLX), for example, has achieved a 5-year return of 14.45%.
  • The State Street US Core Equity Fund (SSAQX) has returned 13.34% over 5 years.

Big US firms have continued to grow in the face of the economic woes caused by the Pandemic.

Note that a 'tracker' fund which focuses on US or European large-cap companies is considered to be a good anchor for a portfolio, particularly if the aim is retirement planning.

Fidelity Select Semiconductors Portfolio (FSELX)

Overseen by fund manager Adam Benjamin since 2020, FSELX is a sector-specific mutual fund focussed on large-cap growth stocks.

Not unusually for an 'active' fund - ie. one which is actively managed by a human expert - FSELX features a relatively-high expense ratio of 0.68%.

FSELX focuses on the electronic components sector, covering top companies involved in design, manufacture, distribution and sales. FSELX is ranked in the top 1% in its Morningstar category for 1 year, 3 year and 5 year average returns.

As we can see from the chart below, FSELX (purple line) has out-performed several relevant indices including the S&P 500 Index (blue line).

  • $10,000 invested ten years ago in FSELX would now be worth over $80,000.

83% of the FSELX portfolio comprises semi-conductor companies. Just under 10% is made up of semiconductor equipment companies. The top 3 holdings are chip manufacturers:

  • NVIDIA (NVDA): 21.86%
  • Marvell Technology (MRVL): 9.08%
  • ON Semiconductor Corporation (ON): 6.48%

Rather than invest in a fund, investors can buy the most popular tech stocks like NVIDIA and Marvell individually with a broker such as eToro. But investing in a fund is about diversification: buying into many stocks at once to spread risk.

eToro provides its own diversification vehicle in the form of 75 Smart Portfolios, which are strategic positions that investors can buy into. Chip-Tech, for example, comprises 35 semiconductor stocks, with NVIDIA taking top slot with 6.45% of the portfolio position.

(The mechanics of Smart Portfolios are different from both mutual funds and ETFs.)

State Street Target Retirement 2060 Fund - Class I (SSDWX)

This is a target date fund run by State Street, one of the big three US fund providers.

SSDWX aims to provide a low-risk haven for retirement savings. And since its inception in 2014, the fund has averaged a return of 7.51%, with an expense ratio of 0.29%.

In common with other target date funds, the SSDWX portfolio comprises a mix of equities, fixed income assets (bonds): 91% equities, 7% fixed income, with  2% is left unassigned.

The fund splits its portfolio between State Street's own indices, ETFs and the US Dollar:

  • The State Street All Cap Equity ex-US Index Portfolio (38.45%)
  • State Street Equity 500 Index II Portfolio (35.37%)
  • State Street Small/Mid Cap Equity Index Portfolio 15.13%)
  • SPDR Portfolio Treasury ETFs (10%)
  • SSGA FDS/USA STIF USD (0.5%)
  • US Dollar (0.45%)

JP Morgan Income Fund (JGIAX)

JGIAX is a bond fund offered by giant US bank JP Morgan. JGIAX has received 4 stars out of 5 from Morningstar.

As a fixed income fund, JGIAX offers an average return far less impressive than the stock funds we review here. The fund boasts a 5-year average annual return of 2.73%.  But investors should remember that this low return is the price that must be paid for investment in lower-risk assets like bonds.

JGIAX is actively-managed, with an asset turnover rate of 54% over the last year. An expense ratio of 0.66% applies. Currently the fund holds 2,369 assets worth almost $11bn. In terms of the ratings of the bonds it holds:

  • AAA: 15.2%
  • AA: 1.8%
  • A: 3.6%
  • BBB: 18.8%
  • BB: 28.9%
  • B: 11.2%
  • CCC and lower: 1.7%
  • Unrated: 18.7%

Distributions are paid monthly and re-invested automatically. A minimum investment of $1,000 applies, with a minimum for subsequent investments of $50.

ESG Emerging Markets All Cap Equity Index Fund

Vanguard is one of the top three US fund providers, along with Black Rock and State Street. Vanguard founder John Bogle pioneered the index investment fund back in 1974.

This fund is an index fund. This means that it chooses its stocks on the basis on an existing selection covered by an index: in this case, the FTSE Emerging All Cap Index.

2,980 stocks are covered by this index. They are companies of all sizes operating in emerging market countries. With this fund in particular, only companies which have been screened for ESG compliance are included.

'ESG' means 'Environmental, Social and Governance'. Companies with high ESG ratings are considered to be more ethical than other companies - treating their employees fairly, avoiding scandal, avoiding environmental despoliation and steering clear of 'vice' products like weapons and alcohol.

As we can confirm from the graph above, the Net Asset Value (NAV) of this fund rose by 11.34% between 2020 and 2021. But, reflecting a general downturn in the markets, it returned -6.64% between 2021 and 2022.

  • Vanguard has given the fund a risk rating of 6/7. This a high risk rating. It reflects the fact that the fund focuses on emerging markets, rather than established markets.
  • An annual management fee of 0.25% applies.

Fidelity ZERO Large Cap Index (FNILX)

Another index fund, FNILX is unusual amongst funds because it charges no fees: hence the 'ZERO' in the name.

FNILX tracks the Fidelity US Large Cap Index. This is effectively the same basket of stocks that makes up the influential S&P 500 Index, which tracks the 500 biggest US companies.

This fund was founded relatively recently - in 2018 - and features a 3-year trailing return on 12.1%.

Its portfolio is capitalization-weighted. This means that shares are held in proportion to the value of the company they represent. It is no surprise then, that Apple - the biggest company in the US - takes the top spot with 6.46% of the $5.5bn portfolio.

Fidelity call FNILX a 'Large Blend' fund. 'Large' denotes that it features large-cap stocks. 'Blend' shows that it combines growth stocks (with high P/E ratios and high growth potential) as well as value stocks (with lower P/E ratios and steady earnings).

Are Mutual Fund Investments Taxed?

Yes.

  • Generally investors should expect tax to apply on any profits they make when cashing in or selling their share in a mutual fund.
  • Also tax applies to any distributions received.
  • Sometimes tax can also apply when a fund manager sells shares in a particular company, even if the investor's share in the total fund does not increase in value.

International Official Guidance on Taxation of Mutual Funds

Taxation rules for mutual funds differs from country to country:

How Much Does it Cost to Invest in Mutual Funds?

Investing in mutual funds comes with costs: management costs and account fees.

Management Costs

These apply to individual funds. Costs come in three types:

1) OCF (Ongoing Charges Figure)

  • This is a percentage figure.
  • The OCF reflects ongoing fund management costs over the course of a year - comparable to the 'Expense Ratio' charged by ETFs.
  • OCFs vary depending on the amount of work a fund manager has to be put into running the fund.
  • Some funds - like the Fidelity ZERO Large Cap Index (FNILX) charge no OCF.

2) Portfolio Transaction Costs

These are charges levied on all investors when the fund pays transaction fees on buying or selling shares.

3) One-off Costs

A common type of one-off cost is a spread fee. This applies to EFT trades only, and reflects the broker's margin.

Other fees sometimes apply to enter and exit a fund. A 'performance' fee sometimes applies too. Otherwise known as a 'hurdle rate', this is a fee which applies when the fund generates a better-than-expected return.

Account Fees

The account fee is what an investor pays to have an account with a particular fund manager. It covers access to a range of financial products including cash accounts and funds. (Note that, with ETFs, an account fee is not payable because ETFs are traded like stocks on the open market.)

Account fees differ among fund providers. Vanguard, for example, charges an account fee of 0.15% per annum on accounts holding less than £250,000.

How Much Money Do You Need to Invest in Mutual Funds?

Investors may be surprised how little they need to get started with mutual funds.

Supposing an investor were researching how to invest $1,000. This is enough to get started with a mutual fund.

  • For example, a minimum investment of just $500 is required to buy into Vanguard's ESG Emerging Markets All Cap Equity Index Fund. Note that also required is a 0.25% management fee.

Three Top Tips for Investing in Mutual Funds for Beginners

1) Pick Funds to Suit your Risk Profile

Effective investment is all about matching assets to your risk profile.

If an investor is young, they may have more appetite for risk/reward. More senior investors may be more interested in risking less and, in return, missing out on high potential gains.

Mutual funds and ETFs are considered to be low-risk investments; money market and fixed income mutual funds offer the lowest risk of all.

2) Don't Chop and Change

If an investor is investing in mutual funds, they should be looking at a timeline that is measured in decades, rather than years. Sure, investors may trade ETFs over the short-term. But mutual funds in particular are designed for investors to hold a position for many years and benefit from the slow, but steady, increase in value across entire markets.

As investment guru Warren Buffett famously remarked, 'time in the market beats timing the market'. In other words, the way to make money is to invest in the long-term. Resist the temptation to try and time the entry into the market as even the trading algorithms of investment banks and hedge funds get this wrong.

3) Why Go it Alone?

With over 100,000 mutual funds and approaching 10,000 ETFs to choose from worldwide, how does a beginner know where to start?

All investment should ideally be handled with the aid of a professional Independent Financial Adviser (IFA). But IFAs can be expensive.

As one of the best known copy trading platforms, eToro offers a  free proprietary tool called CopyTrader which might help.

CopyTrader allows eToro users to search through a list of experienced traders who are willing to have their trades copied. eToro features a powerful search/filter function here. So users can search by risk rating, area of interest and - most importantly - performance.

In the image below we can see that there are 94 eToro traders to copy who specialise in ETFs.

  • The top trader 'Dutfield' has achieved an impressive 12-month return of 58.57%.

Are Mutual Funds the Best Investment for 2022?

Mutual funds are low-risk investments offering low rewards. Offering high potential rewards and risks, on the other hand, is the asset class of cryptocurrency.

Almost 20,000 crypto coins and tokens are now available. So picking a winner is tricky. With exchanges and full-service brokers like eToro, investors can buy into the big blockchains like Bitcoin and Ethereum as well as DeFi, metaverse and meme coins. Investors could buy Dogecoin, for example, the dog-themed meme crypto that did so well in 2021.

But why have sleeping dog Dogecoin when the coin billed as the new Dogecoin is available?

Tamadoge (TAMA) is a dog-themed crypto that merges the fun and popularity of doggy meme coins with the utility of a top video game crypto.

In the 'Tamaverse', players can breed cute virtual pets and compete for TAMA by having them fight other Tamadoge pets. This is a play-to-earn metaverse and meme coin rolled into one. And investors can benefit from the explosion of interest in TAMA without getting involved in the gaming side at all.

Having raised $7.8m of its planned $8.5m target way ahead of schedule, the Tamadoge presale phase is turning out to be one of the best crypto presales of 2022. Investors can buy Tamadoge right now directly from the Tamadoge platform. All that is needed is a Metamask/Trust wallet and some Ethereum (ETH) or Tether (USDT).

As the presale progresses, the price of TAMA is going up. So those who got in early have already made a paper profit. And - if TAMA is anything like Lucky Block, the NFT competition crypto - its value will rocket when it starts being listed on exchanges.

Min Investment 1,000 TAMA (∼$10+ gas fee)
Max Investment NA
Purchase Methods ETH or USDT now - fiat currency soon
Blockchain Ethereum
Presale Ends 2nd September 2022

Tamadoge

Conclusion

Above we have looked at investing in mutual funds for beginners in particular. Our conclusion, which is not unusual in the industry, is that mutual funds offer advantages for the long-term investor - but that many investors understandably prefer the flexibility of ETFs. Hence we have reviewed two popular ETF providers: eToro and Capital.com.

For investors with an eye on short-term gain, we have shone the spotlight on Tamadoge (TAMA), one of the best emerging crypto. With mutual funds, there is generally no rush to invest, as long-term growth is the objective; when to invest in mutual funds is thus a moot question. But, with the most promising crypto, it pays to get in early. The price of TAMA rises with each new phase of the presale - which ends in Q4, 2022.

Tamadoge - The Play to Earn Dogecoin

Our Rating

Tamadoge
  • '10x - 50x Potential' - CNBC Report
  • Deflationary, Low Supply - 2 Billion
  • Listed on OKX
  • Move to Earn, Metaverse Integration on Roadmap
  • NFT Doge Pets - Potential for Mass Adoption
Tamadoge

FAQs

How do you invest in mutual funds?

Who can invest in mutual funds?

Is it safe to invest in mutual funds?

Should I invest in mutual funds or ETFs?

What is better than mutual funds?

What are the 4 types of mutual funds?

References

  • https://www.blackrock.com/us/individual/education/mutual-funds
  • https://www.fidelity.com/learning-center/investment-products/mutual-funds/what-are-mutual-funds
  • https://www.ft.com/content/8eeaa162-140d-4086-a344-3310125b8d3f

Disclaimer

It is vital to always invest responsibly in awareness of all risks involved. Markets can be extremely volatile, so you should conduct extensive research before investing. Our site provides regular updates and diligently verifies all platforms it recommends, but you should form your own opinion and invest only what you can afford to lose. There is never any guarantee of a return on investment.