Top Mutual Funds with Low Expense Ratios for Maximum Returns
Mutual funds are one of the best ways to build long-term wealth, but many investors overlook a critical factor—expense ratios.
An expense ratio is the percentage of your investment that goes toward fund management fees. Even a seemingly small difference—like paying 1% versus 0.2%—can significantly impact your returns over time.
In this guide, we’ll explore:
✔ What expense ratios are and why they matter
✔ The best mutual funds with low expense ratios
✔ How to choose the right low-cost mutual fund for your goals
By the end, you'll have a clear strategy for maximizing your returns while keeping fees to a minimum.
What Is an Expense Ratio?
An expense ratio is the annual fee a mutual fund charges investors to cover management, administrative, and operational costs. It’s expressed as a percentage of assets under management (AUM).
For example:
A 1% expense ratio means you pay $10 annually for every $1,000 invested.
A 0.1% expense ratio means you pay just $1 per $1,000 invested.
Why Low Expense Ratios Matter
✔ Higher Net Returns – Lower fees mean you keep more of your investment growth.
✔ Compounding Benefits – Over decades, even a small difference in fees can result in thousands of extra dollars.
✔ Better Cost Efficiency – Some actively managed funds charge high fees but fail to outperform cheaper index funds.
Top Mutual Funds with Low Expense Ratios
Here’s a list of some of the best mutual funds with low fees, categorized by investment type.
1. Best Low-Cost S&P 500 Index Funds
These funds track the S&P 500, offering broad market exposure with minimal costs.
✔ Vanguard 500 Index Fund (VFIAX)
Expense Ratio: 0.04%
Why It’s Great: One of the lowest-cost S&P 500 funds with a strong long-term track record.
✔ Fidelity ZERO Large Cap Index Fund (FNILX)
Expense Ratio: 0.00%
Why It’s Great: No expense ratio, meaning 100% of your investment stays in the fund.
2. Best Low-Cost Total Stock Market Funds
These funds offer exposure to the entire U.S. stock market.
✔ Vanguard Total Stock Market Index Fund (VTSAX)
Expense Ratio: 0.04%
Why It’s Great: Diversifies across large, mid, and small-cap stocks.
✔ Schwab Total Stock Market Index Fund (SWTSX)
Expense Ratio: 0.03%
Why It’s Great: Lower fees than most competitors, ideal for cost-conscious investors.
3. Best Low-Cost International Stock Funds
For investors looking to diversify globally.
✔ Vanguard Total International Stock Index Fund (VTIAX)
Expense Ratio: 0.11%
Why It’s Great: Offers exposure to developed and emerging markets outside the U.S.
✔ Schwab International Index Fund (SWISX)
Expense Ratio: 0.06%
Why It’s Great: One of the lowest-cost international stock funds available.
4. Best Low-Cost Bond Funds
Ideal for conservative investors or those balancing risk in a portfolio.
✔ Vanguard Total Bond Market Index Fund (VBTLX)
Expense Ratio: 0.05%
Why It’s Great: Tracks a broad index of U.S. government and corporate bonds.
✔ Fidelity U.S. Bond Index Fund (FXNAX)
Expense Ratio: 0.03%
Why It’s Great: Offers ultra-low fees and broad bond market exposure.
How to Choose the Right Low-Cost Mutual Fund
1. Define Your Investment Goals
Are you investing for retirement, a house, or general wealth-building?
Growth-focused investors may prefer stock index funds, while income-seekers might lean toward bond funds.
2. Compare Expense Ratios
Always check the expense ratio before investing.
Funds with expense ratios above 1% should generally be avoided unless they consistently outperform the market.
3. Consider Historical Performance
Past performance doesn’t guarantee future results, but a strong track record can indicate stability.
Look for funds with at least 10+ years of solid returns.
4. Look at Minimum Investment Requirements
Some funds, like Vanguard’s VTSAX, require a $3,000 minimum investment.
Others, like Fidelity’s FNILX, have no minimum investment.
5. Check for Tax Efficiency
If investing in a taxable account, consider tax-efficient funds to reduce capital gains taxes.
Common Mistakes to Avoid
🚫 Chasing Performance – Just because a fund performed well last year doesn’t mean it will continue. Stick to long-term strategies.
🚫 Ignoring Fees – A 1% fee versus a 0.1% fee can cost you thousands over time. Always choose low-cost options when possible.
🚫 Investing Without a Plan – Understand your risk tolerance and investment horizon before selecting funds.
FAQs on Low-Cost Mutual Funds
1. What is considered a low expense ratio for mutual funds?
A good benchmark is:
Index funds: Below 0.20%
Actively managed funds: Below 0.50% (though lower is better)
2. Are low-cost index funds better than actively managed funds?
In most cases, yes. Studies show that low-cost index funds outperform most actively managed funds over the long term due to lower fees.
3. How do I buy low-cost mutual funds?
You can purchase mutual funds through brokers like Vanguard, Fidelity, Schwab, or your 401(k) provider.
4. Can I build a diversified portfolio with only low-cost mutual funds?
Absolutely! A simple three-fund portfolio with:
✔ S&P 500 Index Fund (stocks)
✔ Total International Stock Fund (global stocks)
✔ Total Bond Market Fund (bonds)
… provides excellent diversification at minimal cost.
5. How do mutual fund fees affect long-term returns?
Higher fees eat into returns significantly over time. A 1% fee can reduce your portfolio by thousands over 30+ years.
Final Thoughts & Call to Action
Mutual funds with low expense ratios are the foundation of a smart, cost-effective investment strategy. Whether you’re saving for retirement or just starting your investment journey, choosing funds with low fees can significantly boost your wealth over time.
Ready to invest smarter? Open an account with a low-cost broker like Vanguard, Fidelity, or Schwab and start building your low-fee portfolio today!
