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5 Mutual Funds to Buy on Demand for Lower-Cost Funds

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Mutual fund investors in the United States tend to invest more of their mutual fund assets in lower-cost funds, a report by the Investment Company Institute (ICI) revealed in May. In 2018, the majority of mutual fund-owning households indicated that a fund’s expenses and fees were the important factors they considered when making a purchase decision.

According to Morningstar’s Annual Fee Study, last year, one-fifth of all U.S. mutual funds that had the lowest expenses (funds with fees that rank within the bottom 20% of their Morningstar Category group) witnessed combined net inflows of $605 billion while the remaining 80% witnessed $478 billion in combined outflows. Also, the equal-weighted average expense ratio reduced from 1.10% in 2017 to 1.05% in 2018.

This impressive inflow in lowest-cost funds is indicative of mutual fund investors’ increasing interest in paying less in order to own a fund. Therefore this investment strategy is particularly ideal for investors since fees compound over time and lower returns.

In fact, investor preference for lower-cost funds is also leading to high competition among investment groups that are cutting fees sharply in order to gain market share. The fierce competition between Vanguard, Fidelity, Schwab and BlackRock over low-cost-investing is not unknown.

The competition further intensified at year-end 2018, when Fidelity launched four zero-management fee funds to attract more investors. According to Zacks Investment Research, the financial firm attracted about $3 billion in assets post launch of zero-fee funds.

The Morningstar report estimates that investors saved about $5.5 billion in fund expenses in 2018 against 2017 fee levels. The asset-weighted average expense ratio has been decreasing annually since 2000, which indicates that investors are now paying almost half of what they paid in 2000 to own a fund. Therefore, it might be prudent to invest in a couple of mutual funds that are garnering investor attention because of their low expense ratios.

5 Best Choices

We have selected five mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) that carry an expense ratio lower than 0.5. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.

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.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Vanguard Dividend Growth Fund Investor Shares (VDIGX - Free Report) aims to provide growing income over time. The fund mostly invests in stocks that offer current dividends. The fund focuses on high-quality companies that can offer investors long-term total returns because of their capability to increase earnings and dividends. The fund aims to diversify its investments across industry sectors.

This Zacks sector – Large Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

VDIGX has an annual expense ratio of 0.26%, which is below the category average of 0.94%. It has three and five-year returns of 13.5% and 11.1% respectively, and a minimum initial investment of $3000.

Hartford Core Equity Fund Class R5 (HGITX - Free Report) aims for capital growth. The fund invests the majority of its assets in common stocks. The portfolio of the fund aims to be diversified across industries and companies. HGITX tends to focus on large-capitalization companies that have market capitalization similar to companies included on the S&P 500 index.

This Zacks sector – Large Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

HGITX has an annual expense ratio of 0.49%, which is below the category average of 0.94%. It has three and five-year returns of 14.7% and 12.7% respectively and no minimum initial investment.

DFA Tax Managed U.S. Equity Portfolio (DTMEX - Free Report) fund aims for long-term capital appreciation while minimizing federal income taxes on returns. The fund invests the majority of its assets in securities of American companies. The fund abides by a market capitalization weighted approach to buy the broadly diverse group of securities.

This Zacks sector – Large Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

DTMEX has an annual expense ratio of 0.22%, which is below the category average of 0.94%. It has three and five-year returns of 14.8% and 11.2% respectively and no minimum initial investment.

Fidelity Series All-Sector Equity Fund (FSAEX - Free Report) invests most of its assets in equity securities. The fund aims for capital growth and invests in U.S. and non-U.S. companies alike. The fund uses fundamental analysis of factors such as each issuer's financial condition and industry position along with market and economic conditions to select investments.

This Zacks sector – Global-Equity product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSAEX has an annual expense ratio of 0%, which is below the category average of 1.07%. It has three and five-year returns of 14.2% and 10.8% respectively and no minimum initial investment.

MFS Massachusetts Investors Growth Stock Fund Class I (MGTIX - Free Report) mostly opts for investments in stocks with the aim of providing capital appreciation. These stocks may include common stocks and other securities that represent an ownership interestin a company or other issuer. The advisor focuses on investing the fund's assets in stocks of companies that its advisor feels have potential for above-average earnings growth against other companies.

This Zacks sector – Large Cap Growth product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

MGTIX has an annual expense ratio of 0.48%, which is below the category average of 1.07%. It has three and five-year returns of 18.3% and 13.7% respectively and no minimum initial investment.

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