Best Mutual Funds for June 2025 and How to Invest

What are mutual funds?

Mutual funds are baskets of investments that can help diversify your portfolio. With a single mutual fund, you could gain exposure to hundreds of stocks, bonds or other investments. This makes them a popular choice for people who don't want to pick and choose individual investments themselves but want to benefit from the stock market's historically high average annual returns.

Mutual funds are also often the foundation of many investment accounts, particularly retirement accounts such as 401(k)s. You can invest in mutual funds via a brokerage account, retirement account or sometimes even directly from a mutual fund company.

» Want to learn more? How mutual funds work

How to invest in mutual funds

If you're ready to invest in mutual funds, here is our five-step guide on how to buy them.

1. Decide between active and passive funds

Your first choice is perhaps the biggest: Do you want to beat the market or try to mimic it? It's also a fairly easy choice: One approach costs more than the other, often without delivering better results.

Actively managed funds are managed by professionals who research what's out there and buy with an eye toward beating the market. While some fund managers might achieve this in the short term, it has proved difficult to outperform the market over the long term and on a regular basis.

Passive investing is a more hands-off approach and is rising in popularity, thanks in large part to the ease of the process and the results it can deliver. Passive investing often entails fewer fees than active investing. Many passive investors choose index funds or ETFs, which are similar to mutual funds but aren't professionally managed. This often means they carry lower fees.

» Learn the differences between index funds and active mutual funds

2. Calculate your investing budget

Thinking about your budget in two ways can help determine how to proceed:

How much do mutual funds cost?

One appealing thing about mutual funds is that once you meet the minimum investment amount, you can often choose how much money you’d like to invest. Many mutual fund minimums range from $500 to $3,000, though some are in the $100 range, and there are a few that have a $0 minimum. So if you choose a fund with a $100 minimum and you invest that amount, afterward, you may be able to contribute as much or as little as you want. If you choose a fund with a $0 minimum, you could invest in a mutual fund for as little as $1.

Aside from the required initial investment, ask yourself how much money you have to comfortably invest, and then choose an amount.

Which mutual funds should you invest in?

Maybe you’ve decided to invest in mutual funds. But what initial mix of funds is right for you?

Generally speaking, the closer you are to retirement age, the more holdings in conservative investments you may want to have — younger investors typically have more time to ride out riskier assets and the inevitable downturns that happen in the market. One kind of mutual fund takes the guesswork out of the “what's my mix” question: target-date funds, which automatically reallocate your asset mix as you age.

» MORE: How target-date funds work

3. Decide where to buy mutual funds

You need a brokerage account when investing in stocks, but you have a few options with mutual funds. If you contribute to an employer-sponsored retirement account, such as a 401(k), there’s a good chance you’re already invested in mutual funds.

You could buy directly from the company that created the fund, but doing so will limit your choice of funds. You can also work with a traditional financial advisor to purchase funds, but it may incur some additional fees.

Most investors opt to buy mutual funds through an online brokerage, many of which offer a broad selection of funds across a range of fund companies. If you go with a broker, you'll want to consider:

• Affordability. Mutual fund investors can face two kinds of fees: from their brokerage account (transaction fees) and from the funds themselves (expense ratios and front- and back-end “sales loads”). More on these below.

• Fund choices. Workplace retirement plans may carry only a dozen or so mutual funds. You may want more variety than that. Some brokers offer hundreds, even thousands, of no-transaction-fee funds to choose from, as well as other types of funds like ETFs.

• Research and educational tools. With more choice comes the need for more thinking and research. It's vital to pick a broker that helps you learn more about a fund before investing your money.

• Ease of use. A brokerage's website or app won't be helpful if you can't make heads or tails of it. You want to understand and feel comfortable with the experience.

» NerdWallet's roundup of the best brokers for mutual funds

4. Understand mutual fund fees

Whether you choose active or passive funds, a company will charge an annual fee for fund management and other costs of running the fund, expressed as a percentage of the cash you invest and known as the expense ratio. For example, a fund with a 1% expense ratio will cost you $10 for every $1,000 you invest.

A fund’s expense ratio isn’t always easy to identify upfront (you may have to dig through a fund’s prospectus to find it), but it's well worth the effort since these fees can eat into your returns over time.

» How do fees impact returns? Use our mutual fund calculator to find out

Mutual funds come in different structures that can impact costs:

• Open-end funds: Most mutual funds are open-end, meaning there is no limit to the number of investors or shares. The NAV per share rises and falls with the value of the fund.

• Closed-end funds: These funds have a limited number of shares offered during an initial public offering, much as a company would. There are far fewer closed-end funds on the market compared with open-end funds. A closed-end fund’s trading price is quoted throughout the day on a stock exchange. That price may be higher or lower than the fund’s actual value.

Whether or not funds carry commissions is expressed by “loads,” such as:

• Load funds: Mutual funds that pay a sales charge or commission to the broker or salesperson who sold the fund, which is typically passed on to the investor.

• No-load funds: Also known as “no-transaction-fee funds,” these mutual funds charge no sales commissions for the purchase or sale of a fund share. This is the best deal for investors, and online brokers often have thousands of choices for no-transaction-fee mutual funds. Most funds available to individual investors are no-load.

» Ready to dive deeper? Read our full guide on mutual fund fees

5. Manage your mutual fund portfolio

Once you determine the mutual funds you want to buy, you'll want to think about how to manage your investment.

One move would be to rebalance your portfolio once a year, with the goal of keeping it in line with your diversification plan. For example, if one slice of your investments had great gains and now constitutes a bigger share of the pie, you might consider selling off some of the gains and investing in another slice to regain balance.

Sticking to your plan also will keep you from chasing performance. This is a risk for fund investors (and stock pickers) who want to get in on a fund after reading how well it did last year. But "past performance is no guarantee of future performance" is an investing cliche for a reason. It doesn't mean you should just stay put in a fund for life, but chasing performance almost never works out.

Best-performing U.S. equity mutual funds

To determine the best mutual funds measured by five-year returns, we looked at U.S. equity funds open to new investors with low costs (expense ratios of 1% or less) and minimum investment requirements of $3,000 or less.

Average mutual fund return

Managing your portfolio also means managing your expectations, and different types of mutual funds should bring different expectations for returns.

For actively managed investments, particularly those with higher fees, it is difficult to consistently beat the index. In fact, it rarely happens. Most investors would be better served with a passive investment strategy, which could mean a combination of exchange-traded funds and mutual funds that incorporate large-, mid-, and small-cap stocks, as well as international and emerging markets.

Stock mutual funds = higher potential returns (or losses)

Stock mutual funds, also known as equity mutual funds, carry the highest potential rewards, but also higher inherent risks — and different categories of stock mutual funds carry different risks.

For example, the performance of large-cap, high-growth funds is typically more volatile than, say, stock index funds that seek only to match the returns of a benchmark index like the S&P 500.

» Dive deeper: See our list of the top 25 best-performing stocks this month

Bond mutual funds = lower returns (but lower risk)

Bond mutual funds, as the name suggests, invest in a range of bonds and provide a more stable rate of return than stock funds. As a result, potential average returns are lower.

Bond investors buy government and corporate debt for a set repayment period and interest rate. While no one can predict future stock market returns, bonds are considered a safer investment as governments and companies typically pay back their debt (unless either goes bust).

» Want to get started? Here's how to invest in bonds

Money market mutual funds = lowest returns, lowest risk

These are fixed-income mutual funds that invest in top-quality, short-term debt. They are considered one of the safest investments you can make. Money market funds are used by investors who want to protect their retirement savings but still earn some interest — potentially between 1% and 5% per year.

» Sound right for you? How to invest in money market funds and top performers

The bottom line

Chasing past performance may be a natural instinct, but it often isn't the right one when placing bets on your financial future. Mutual funds are the cornerstone of buy-and-hold and other retirement investment strategies.

Likewise, chasing one-year returns is not a wise investment strategy. A good rule of thumb is to look for consistency of returns on a longer time horizon. To get a sense of a longer track record, it would be wise to look at the three, five, and 10-year returns.

Hopping from stock to stock based on performance is a rear-view-mirror tactic that rarely leads to big profits. That's especially true with mutual funds, where each transaction may bring costs that erode any long-term gains.

What's important to consider is the role any mutual fund you buy will play in your total portfolio. Mutual funds are inherently diversified, as they invest in a collection of companies (rather than buying stock in just one). That diversity helps spread your risk.

You can create a smart, diversified portfolio with just a few well-chosen mutual funds or exchange-traded funds, plus annual check-ins to fine-tune your investment mix.

» Next step: View our list of the best index funds this month