Where to Buy Mutual Funds: Your Main Options

You can buy mutual funds directly from the fund company, through a brokerage account, or via your employer's retirement plan

The place you buy a mutual fund depends on which fund you want and what kind of account you want to hold it in. A fund company like Vanguard or Fidelity will sell you their own funds directly. A brokerage like Charles Schwab or Fidelity will sell you funds from many different companies. Your employer's 401(k) plan offers a limited menu of funds chosen by your plan administrator. Each route has different costs, different fund choices, and different account features — so the right choice depends on what you're trying to do.

Most individual investors use a brokerage because it offers the widest range of funds in a single account. Employer plans are useful if your employer offers a match. Direct purchases from a fund company make sense if you want to own multiple funds from the same company and want to minimize fees.

Key Takeaways

• Fund companies sell only their own funds directly; brokerages sell funds from many companies and are the most flexible option for individual investors.
• Employer retirement plans offer tax advantages but limit you to the funds on the plan's menu, which is usually 10 to 30 options.
• Buying directly from a fund company costs less per transaction but requires you to manage multiple accounts if you want funds from different companies.
• Brokerages charge zero trading fees on most funds but may charge fees on some, so check the no-fee list before opening an account.
• The lowest-cost mutual funds (index funds and passively managed funds) are available at nearly every platform, so cost differences matter less for those.

Buying directly from a fund company

When you buy directly from Vanguard, Fidelity, Schwab, or another fund company, you are buying that company's own funds. Vanguard sells Vanguard funds. Fidelity sells Fidelity funds. You open an account with the fund company, link a bank account, and transfer money in. The fund company then holds your money and executes your purchases.

The main advantage is cost. Fund companies do not charge trading fees on their own funds, and many waive minimum account balances if you set up automatic deposits. If you want to own five Vanguard index funds, buying directly from Vanguard is the cheapest way to do it. You also get direct access to the fund company's customer service team, which can answer detailed questions about how their specific funds work.

The main disadvantage is that you can only buy that company's funds. If you want a Vanguard fund and a Fidelity fund, you need two separate accounts. You also have to track multiple logins and multiple statements. For someone building a simple portfolio of index funds from one company, this is fine. For someone who wants to compare funds across companies or hold individual stocks alongside mutual funds, a brokerage is usually easier.

Buying through a brokerage

A brokerage is a financial company that holds your money and lets you buy and sell investments. The major brokerages — Charles Schwab, Fidelity, E*TRADE, TD Ameritrade, and others — sell mutual funds from hundreds of different fund companies in a single account. You open one account, link your bank, and can then purchase funds from any company the brokerage offers.

The main advantage is choice and simplicity. You can hold Vanguard funds, Fidelity funds, T. Rowe Price funds, and individual stocks all in one account with one login and one statement. You can move money between investments without withdrawing it from the brokerage. Most brokerages now charge zero trading fees on mutual funds, meaning you pay no fee to buy or sell a fund.

The main disadvantage is that some brokerages charge transaction fees on certain funds, usually funds from smaller or less common fund companies. Before you open an account, check whether the specific funds you want to buy are on the brokerage's no-fee list. For the most popular funds — especially index funds from Vanguard, Fidelity, and Schwab — every major brokerage offers them commission-free.

A brokerage account is also a taxable account, meaning you pay income tax on dividends and capital gains each year. If you are saving for retirement, an employer plan or an individual retirement account (IRA) at a brokerage offers tax advantages that a regular brokerage account does not.

Buying through an employer retirement plan

If your employer offers a 401(k), 403(b), or similar retirement plan, you can buy mutual funds through that plan by having money deducted from your paycheck. The plan administrator chooses which funds to offer — usually between 10 and 30 options. You cannot buy any fund you want; you can only buy the ones on the plan's menu. Some larger employers offer 50 or more options, but the choice is still limited compared to what you would have at a brokerage.

The main advantage is tax deferral. Money you contribute to a 401(k) is not taxed in the year you earn it, so you pay tax only when you withdraw the money in retirement. If your employer offers a match — contributing money to your account if you contribute — that is assistance programs and a reason to use the plan even if the fund choices are limited. A typical match is 50 cents for every dollar you contribute, up to 6 percent of your salary.

The main disadvantage is lack of choice. If the plan does not offer the fund you want, you cannot buy it through the plan. Some plans offer a "brokerage window" that lets you buy any mutual fund or stock, but this is less common. If you leave your job, you can roll the money into an IRA at a brokerage, where you will have full choice of funds.

Comparing costs across platforms

The cost of buying a mutual fund varies by where you buy it. A fund company charges zero fees on its own funds. A brokerage charges zero fees on most funds but may charge a fee on some. An employer plan may charge administrative fees that are deducted from your account balance each year.

For index funds and other passively managed funds, cost differences between platforms are usually small. Vanguard's total stock market index fund costs the same whether you buy it from Vanguard directly or through Charles Schwab. The real cost difference appears with actively managed funds, where some brokerages charge transaction fees and others do not. A transaction fee typically ranges from $25 to $50 per purchase, though some brokerages have eliminated these fees entirely.

Before opening an account, search the brokerage's website for the specific fund you want and check whether it charges a transaction fee. Most brokerages publish a list of commission-free funds. If the fund you want is not on the list, you can either pay the fee, buy it elsewhere, or choose a similar fund that is commission-free.

Opening an account and getting started

The process is similar across all platforms. You provide your name, address, Social Security number, and employment information. You choose the type of account — a regular taxable account, an IRA, or a retirement plan account. You link a bank account and transfer money in. Once the money settles (usually one to three business days), you can buy funds.

Most brokerages and fund companies let you open an account online in 10 to 15 minutes. Some require a minimum deposit to open an account; others do not. Many offer automatic investing, where money is transferred from your bank account and invested on a schedule you set — weekly, monthly, or quarterly. This removes the need to remember to invest and helps you build the habit of regular contributions.

If you are opening an IRA for the first time, you will need to choose between a traditional IRA (where contributions may be tax-deductible) and a Roth IRA (where withdrawals in retirement are tax-free). The brokerage's website walks you through this choice, but if you are unsure, you can open the account and change your mind later by rolling money into a different type of IRA.

Frequently Asked Questions

Can I buy the same mutual fund at different brokerages?

Yes. A mutual fund is the same fund no matter where you buy it — the fund's performance and holdings are identical. The difference is the fee the brokerage charges you to buy it. A fund that is commission-free at one brokerage might charge a fee at another, so it is worth checking before you open an account.

What is the difference between buying a mutual fund and buying an ETF?

Both are available at brokerages and fund companies. Mutual funds are priced once per day after the market closes; ETFs trade throughout the day like stocks. Mutual funds often have higher minimum investments; ETFs do not. For most individual investors, the choice between them depends on the specific fund you want, not the platform you buy it from.

Do I have to use my employer's 401(k) plan, or can I open my own IRA instead?

You can do both. An IRA is your own account that you open and control. A 401(k) is your employer's plan. If your employer offers a match, contributing to the 401(k) is usually the better choice because the match is assistance programs. You can also open an IRA and contribute to both in the same year, up to annual contribution limits set by the IRS.

What happens to my mutual funds if the brokerage goes out of business?

Your investments are protected. Brokerages are required to hold your securities separately from their own assets. If a brokerage fails, your mutual funds and cash are returned to you. The Securities Investor Protection Corporation (SIPC) insures cash and securities up to $500,000 per account.

Can I move my mutual funds from one brokerage to another?

Yes. You can transfer your account to a different brokerage through a process called an ACAT transfer, which usually takes three to seven business days. You can also sell your funds at one brokerage, withdraw the cash, and buy the same funds at another brokerage, though this triggers a taxable event if the account is not a retirement account.