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Best 4 Low-Cost Mutual Funds to Boost Your Portfolio
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Apart from stocks, mutual funds are great options for alternative investment purposes. Money from individuals and even organizations are invested in stocks, bonds or other assets covering diverse industries globally.
The choice of mutual fund is determined with the help of several parameters. These include assets under management, the manner in which these assets are allocated and the profile of the fund manager. Moreover, the price at which one buys mutual funds and the expenses they need to incur for holding and selling them are crucial.
Mutual funds with a strong performance record and low expenses have always been preferred investment options. Recent improvements in the domestic market are expected to boost demand for low cost mutual funds. Keeping this in mind, we have identified some top-rated, low-cost mutual funds that have gained significantly in both the short as well as the long terms.
Why Low Expense Ratio is Important?
Expense ratio is defined as the percentage of total assets required to operate a fund. The percentage is determined annually, by dividing a fund's operating expenses by the average dollar value of assets under fund management. The fees related to the buying and selling of fund assets are not included in the expense ratio.
Higher operating expenses negatively impact the total value of a mutual fund's assets, which in turn weigh on returns. So, a low expense ratio not only ensures efficient utilization of a fund’s assets, it also leads to encouraging returns for investors. Investors often rely on the expense ratio to compare the performance of a fund with that of its competitors.
An expense ratio between 0.5% and 0.75% is considered low, whereas any expense ratio above 1.5% is generally considered high. Here, we have compared the top 100 mutual funds with a Zacks Mutual Fund Rank #1 (Strong Buy) and high- and low expense ratio mutual funds.
The top 100 funds out of the total low expense ratio funds we studied have registered an average return of 9.5% year to date as compared to the top 100 high expense ratio funds’ average return of 7.9%.
Focus on No Load Funds
Mutual funds with strong performance not only have low expense ratios but also have no sales loads. Sales load is usually of two types, which are front end sales loads and back end sales loads. Front end sales loads are fees that an investor must pay at the time of an investment. Meanwhile, back end sales loads are fees that an investor must pay while selling the investments.
Funds with no sales load generally provide better returns as compared to load funds. The top 100 funds out of the total no-load funds we studied have registered an average year-to-date return of 15.6% compared to the top 100 load funds’ average return of 9.7%.
4 Low-Cost Funds to Buy Now
We have highlighted four no-load mutual funds with an expense ratio below 0.75% that carry a Zacks Mutual Fund Rank #1 (Strong Buy). We expect these funds to outperform their peers in the future. Remember the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Moreover, these funds have encouraging year-to-date returns which are above the average year-to-date return of top 100 low expense ratio funds as well as top 100 no load funds. The minimum initial investment is within $5000 and net assets are above $50 million.
American Century Global Gold Investor (BGEIX - Free Report) seeks returns which includes capital growth. BGEIX invests a bulk portion of its assets in securities of companies which are involved in mining, distributing, processing and exploring of gold. Annual expense ratio of 0.67% is significantly lower than the category average of 1.40%. BGEIX is non-diversifiable in nature and has year-to-date return of more than 100%.
T. Rowe Price New Era (PRNEX - Free Report) invests more than two-thirds of its assets in securities of companies that own or develop natural resources. PRNEX seeks long-term appreciation of capital. Annual expense ratio of 0.67% is considerably lower than the category average of 1.40%. PRNEX has year-to-date return of 20.2%.
Vanguard Energy Investor (VGENX - Free Report) seeks capital growth for the long run. VGENX invests a lion’s share of its assets in the securities of companies which are engaged in production, exploration and transmission of products related to the energy sector. Annual expense ratio of 0.37% is significantly lower than the category average of 1.40%. VGENX has year-to-date return of 22.4%.
American Century Utilities Investor (BULIX - Free Report) invests a major part of its assets in common stocks of companies which are involved in the utilities sector. BULIX seeks appreciation of capital and income for the long run. Annual expense ratio of 0.67% is considerably lower than the category average of 1.38%. BULIX has year-to-date return of 21.4%.
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Best 4 Low-Cost Mutual Funds to Boost Your Portfolio
Apart from stocks, mutual funds are great options for alternative investment purposes. Money from individuals and even organizations are invested in stocks, bonds or other assets covering diverse industries globally.
The choice of mutual fund is determined with the help of several parameters. These include assets under management, the manner in which these assets are allocated and the profile of the fund manager. Moreover, the price at which one buys mutual funds and the expenses they need to incur for holding and selling them are crucial.
Mutual funds with a strong performance record and low expenses have always been preferred investment options. Recent improvements in the domestic market are expected to boost demand for low cost mutual funds. Keeping this in mind, we have identified some top-rated, low-cost mutual funds that have gained significantly in both the short as well as the long terms.
Why Low Expense Ratio is Important?
Expense ratio is defined as the percentage of total assets required to operate a fund. The percentage is determined annually, by dividing a fund's operating expenses by the average dollar value of assets under fund management. The fees related to the buying and selling of fund assets are not included in the expense ratio.
Higher operating expenses negatively impact the total value of a mutual fund's assets, which in turn weigh on returns. So, a low expense ratio not only ensures efficient utilization of a fund’s assets, it also leads to encouraging returns for investors. Investors often rely on the expense ratio to compare the performance of a fund with that of its competitors.
An expense ratio between 0.5% and 0.75% is considered low, whereas any expense ratio above 1.5% is generally considered high. Here, we have compared the top 100 mutual funds with a Zacks Mutual Fund Rank #1 (Strong Buy) and high- and low expense ratio mutual funds.
The top 100 funds out of the total low expense ratio funds we studied have registered an average return of 9.5% year to date as compared to the top 100 high expense ratio funds’ average return of 7.9%.
Focus on No Load Funds
Mutual funds with strong performance not only have low expense ratios but also have no sales loads. Sales load is usually of two types, which are front end sales loads and back end sales loads. Front end sales loads are fees that an investor must pay at the time of an investment. Meanwhile, back end sales loads are fees that an investor must pay while selling the investments.
Funds with no sales load generally provide better returns as compared to load funds. The top 100 funds out of the total no-load funds we studied have registered an average year-to-date return of 15.6% compared to the top 100 load funds’ average return of 9.7%.
4 Low-Cost Funds to Buy Now
We have highlighted four no-load mutual funds with an expense ratio below 0.75% that carry a Zacks Mutual Fund Rank #1 (Strong Buy). We expect these funds to outperform their peers in the future. Remember the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Moreover, these funds have encouraging year-to-date returns which are above the average year-to-date return of top 100 low expense ratio funds as well as top 100 no load funds. The minimum initial investment is within $5000 and net assets are above $50 million.
American Century Global Gold Investor (BGEIX - Free Report) seeks returns which includes capital growth. BGEIX invests a bulk portion of its assets in securities of companies which are involved in mining, distributing, processing and exploring of gold. Annual expense ratio of 0.67% is significantly lower than the category average of 1.40%. BGEIX is non-diversifiable in nature and has year-to-date return of more than 100%.
T. Rowe Price New Era (PRNEX - Free Report) invests more than two-thirds of its assets in securities of companies that own or develop natural resources. PRNEX seeks long-term appreciation of capital. Annual expense ratio of 0.67% is considerably lower than the category average of 1.40%. PRNEX has year-to-date return of 20.2%.
Vanguard Energy Investor (VGENX - Free Report) seeks capital growth for the long run. VGENX invests a lion’s share of its assets in the securities of companies which are engaged in production, exploration and transmission of products related to the energy sector. Annual expense ratio of 0.37% is significantly lower than the category average of 1.40%. VGENX has year-to-date return of 22.4%.
American Century Utilities Investor (BULIX - Free Report) invests a major part of its assets in common stocks of companies which are involved in the utilities sector. BULIX seeks appreciation of capital and income for the long run. Annual expense ratio of 0.67% is considerably lower than the category average of 1.38%. BULIX has year-to-date return of 21.4%.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>