Many investors focus on total returns when comparing one fund against another. While it’s good to know how much your money can grow, the size of the fund can also impact your total returns.
Each fund incurs operating costs that factor into the expense ratio. This ratio reflects the annual cost of investing in the fund. For instance, if a mutual fund has a 1% expense ratio, you will have to pay $10 for every $1,000 you put into the fund.
The expense ratio is a silent cost that gets deducted from the fund’s share value. Investors can end up with lower expense ratios by investing in mutual funds with higher assets under management, or AUM. This is simply because higher AUM can result in operating costs getting spread among more investors and assets.
[Sign up for stock news with our Invested newsletter.]
One way you can save money and possibly increase your returns is by focusing on the largest mutual funds. However, a few of the largest funds have relatively large expense ratios as well when compared with some of the low-cost index funds out there, and especially low-cost exchange-traded funds, or ETFs.
Many of the largest mutual funds use popular indexes like the S&P 500 as benchmarks and with the goal of generating competitive market returns.
This list of the largest mutual funds is based on Fidelity’s Mutual Fund Research screener, which lists mutual funds from the highest AUM to the lowest. These are the 10 largest mutual funds based on AUM as of Oct. 31:
| Mutual fund | Assets under management | Expense ratio |
| Vanguard Total Stock Market Index Fund Admiral Sales (ticker: VTSAX) | $1.3 trillion | 0.04% |
| Vanguard 500 Index Fund Admiral Shares (VFIAX) | $851.2 billion | 0.04% |
| Fidelity 500 Index Fund (FXAIX) | $407.6 billion | 0.015% |
| Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) | $354.4 billion | 0.11% |
| Fidelity Government Money Market Fund (SPAXX) | $290 billion | 0.42% |
| Fidelity Government Money Market Fund Premium Class (FZCXX) | $290 billion | 0.32% |
| Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) | $287.5 billion | 0.05% |
| Fidelity Government Cash Reserves (FDRXX) | $223.5 billion | 0.4% |
| American Funds The Growth Fund of America Class A (AGTHX) | $214.3 billion | 0.63% |
| American Funds The Growth Fund of America Class C (GFACX) | $214.3 billion | 1.39% |
Vanguard Total Stock Market Index Fund Admiral Sales (VTSAX)
AUM: $1.3 trillion
VTSAX gives investors exposure to 3,793 stocks with an emphasis on technology. The fund has a $3,000 investment minimum and uses the CRSP U.S. Total Market Index as a benchmark. Its trailing-12-month yield is 1.6%.
Vanguard 500 Index Fund Admiral Shares (VFIAX)
AUM: $851.2 billion
This large blend fund has a $3,000 minimum investment and is also available as an ETF. The fund uses the S&P 500 as its benchmark and puts most of its assets into the information technology sector.
Fidelity 500 Index Fund (FXAIX)
AUM: $407.6 billion
Just like VFIAX, this large-blend fund seeks to mimic the returns of the S&P 500. The fund’s top holdings primarily consist of technology companies. FXAIX has been around since 1988.
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
AUM: $354.4 billion
This fund uses the FTSE Global All Cap ex U.S. Index as its benchmark. The fund has a $3,000 minimum investment and gives investors exposure to about 8,500 stocks.
Fidelity Government Money Market Fund (SPAXX)
AUM: $290 billion
The Fidelity Government Money Market Fund is a low-risk fund that gives investors exposure to short-term U.S. debt. A money market fund is a mutual fund that generally aims for short-term, higher-quality investments. High liquidity with low risk is one of this fund’s goals by design.
Elevated interest rates have helped the fund generate higher returns for investors this year, but annual returns are still in the low single digits.
Fidelity Government Money Market Fund Premium Class (FZCXX)
AUM: $290 billion
This fund is the same one as SPAXX. The only difference is that FZCXX has a higher minimum investment and a lower expense ratio. That means a higher yield, but FZCXX has a $100,000 minimum investment.
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
AUM: $287.5 billion
Vanguard Total Bond Market Index Fund Admiral Shares has a $3,000 initial investment requirement and tracks the Bloomberg U.S. Aggregate Float Adjusted Index. This fund offers exposure to U.S. Treasurys and mortgage-backed securities. It has a trailing-12-month yield of 3.2%.
Fidelity Government Cash Reserves (FDRXX)
AUM: $223.5 billion
The Fidelity Government Cash Reserves fund focuses on short-term U.S. Treasurys, and 99.5% of the fund is invested in cash, U.S. government securities and repurchase agreements that are fully collateralized by cash or government securities. Bottom line: The fund is low-risk. It’s been around a while as well, as it started up in 1979.
American Funds The Growth Fund of America Class A (AGTHX)
AUM: $214.3 billion
AGTHX is a fund that caters to growth investors. U.S. equities make up over 80% of the fund’s total assets. Most of the stocks in the fund are large-cap growth stocks, including Microsoft Corp. (MSFT) and Meta Platforms Inc. (META) as top holdings. The minimum investment is $250, and the fund has an expense ratio of 0.63%.
American Funds The Growth Fund of America Class C (GFACX)
AUM: $214.3 billion
This fund gives investors exposure to the same assets as the Class A shares in AGTHX. The minimum investment is $250, and the fund currently holds 327 stocks. Its expense ratio is higher than the Class A version, at 1.39%, and its 27.7% return year to date is nearly a percentage point lower than AGTHX’s return.
What to Look For in a Mutual Fund
Mutual funds with many assets under management tend to have lower expense ratios because they can spread the costs among more capital. Most mutual funds won’t raise their expense ratios by 50% if shares also go up by 50%.
While assets under management can tip an investor off about the expense ratio and if it will stay low, there are other details to consider. Investors should look at a fund’s historical returns and asset allocation.
Historical returns aren’t a reliable indicator of future results. However, steady gains over the long run can be promising for investors who initiate positions in the mutual fund.
Asset allocation indicates what you get with your current money. Investors can decide how much exposure they want to tech companies, large-cap stocks and other opportunities. Some mutual funds will line up with the asset allocation they desire based on their risk tolerance.
If a mutual fund tracks a popular index like the S&P 500, an investor should compare the fund’s performance with the benchmark. The returns should be similar. Mutual funds may have a slight gap compared to the benchmark due to the expense ratio. Still, some mutual funds manage to outperform the benchmark.
Mutual Funds vs. ETFs
Mutual funds and ETFs both give investors exposure to many stocks. Funds have established goals and asset allocations that investors can view before buying shares.
Some of the mutual funds included on this list are also available as ETFs. Expense ratios and asset allocations are similar, but the key difference is trading during market hours.
Mutual funds cannot be traded throughout the day. You can execute a buy or sell order that will get placed at the end of the day. Mutual fund prices only change once per day, when the market closes.
On the other hand, ETFs trade throughout the day and have price fluctuations just like any individual stock. It is also possible to trade options that follow an ETF. Investors can also use limit orders, stop-losses and other types of orders for ETFs.
Since mutual funds do not offer the same level of trading flexibility as ETFs, they are more suited for passive investors. You can still invest in ETFs and be a passive investor, but ETF investors have more opportunities to trade throughout the day if they wish.
Should You Invest in a Mutual Fund?
Mutual funds give investors broad exposure to the stock market and allow them to track various indexes. These funds offer instant portfolio diversification and asset management, which can save investors a lot of time.
Investors can put their money into actively managed mutual funds and let the portfolio managers do all of the work. You can also put your money into a passively managed mutual fund to save more money on fees. Some investors buy individual stocks along with mutual funds, or choose a fund with larger positions in their favorite stocks.
The main downside with mutual funds is the expenses. Some mutual funds can get expensive, with front and back loads impacting total returns. Luckily, it’s easy to find mutual funds with no loads and very low expense ratios. Investment firm Vanguard is a good place to start your search for low-cost mutual funds.
Investors have to weigh whether an expense ratio justifies having someone else handle the investing for them to achieve market returns. For many investors, a small expense ratio for a fund with significant AUM and solid historical returns is worth the time saved.
More from U.S. News
Vanguard vs. Fidelity: Which Is Better for You?
The Best Vanguard Money Market Funds
5 Best Bond Funds for Retirement
10 Largest Mutual Funds by AUM originally appeared on usnews.com
