What is the average return of mutual funds?

For individuals looking to invest without spending hours researching, mutual funds might be the way to go. Here’s a full breakdown of mutual funds, average mutual fund returns, and how they work as a long-term investment opportunity.

What is a mutual fund?

A mutual fund is a portfolio of assets overseen by professional fund managers. Mutual funds act as a vehicle for people to gain exposure to financial markets and, ideally, earn a return on the amount invested. They are usually operated by large investment companies such as Fidelity Investments or Vanguard and are not available on the open market.

What are the types of mutual funds?

Mutual funds have different characteristics depending on their overall objectives – some may aim for wealth preservation, and others may aim for growth using a high risk, high reward strategy.

Typical mutual funds include:

  • Money market funds
  • Equity funds
  • Bond funds
  • Target Date Funds

Benefits and Risks of Mutual Funds

Mutual funds attract investors based on their ability to generate a return. This may take the form of a payment of dividends, capital gains by the fund or an increase in the net asset value of the holdings. However, there is no guarantee of return and choosing to invest in mutual funds may result in a partial or permanent loss of the amount invested.

What to know before investing in mutual funds

Mutual funds often have fees called expense ratios. Investors lose their shareholder voting rights with respect to the underlying securities held in the portfolio.

What is the average rate of return of a mutual fund?

Typically, equity mutual funds try to beat the returns of the S&P 500, which has historically produced 10.70% over its 65-year history. However, the majority of funds do not beat the benchmark. About 79% of mutual funds underperformed the S&P 500 in 2021, a figure that has increased by 86% over the past 10 years.

Returns can also vary widely, as funds target many different assets, sectors and companies of different sizes, as is the case with stock market mutual funds. For example, the energy sector has done extremely well in 2022. A mutual fund with a strong energy focus is likely to outperform other funds with no energy exposure.

What is a good 10-year return for a mutual fund?

The best performing large company equity mutual funds have produced returns of up to 17% over the past 10 years. It should be noted that average annualized returns were higher than usual – at 14.70% during this period – due to a multi-year bull market. A good return would be one that consistently outperforms its benchmark. However, most do not.

What is the average performance of mutual funds over the past 20 years?

High performing large company equity mutual funds have produced returns of up to 12.86% over the past 20 years. By comparison, the S&P 500 has produced returns of 8.13% since 2002.

Are mutual funds a good option?

Mutual funds can be a good choice depending on the profile of the investor. Key characteristics to consider include management professionalism, track record, time horizon and associated costs, and diversification. Here’s a comparison of a few other options and how they stack up.

Mutual Funds vs ETFs

The main difference between mutual funds and exchange-traded funds is liquidity. ETFs are openly traded on stock exchanges, allowing them to be bought and sold like individual stocks. Thus, ETFs can be sold short. They also tend to have lower fees than mutual funds.

Mutual Funds vs Hedge Funds

The main difference between mutual funds and hedge funds is access. Generally, hedge funds are only available to qualified investors and involve much higher risk than traditional mutual funds. Indeed, hedge funds also take short positions and invest in volatile derivatives such as option contracts.

Final take

Mutual funds can be a great way for people to gain exposure to more risky assets if they want to preserve or grow their wealth. Anyone investing in a mutual fund should be aware of the associated costs and know their own time horizon and risk tolerance before investing.


  • What are the best mutual funds?
    • Top performing mutual funds include Shelton Funds and Fidelity Investments. Mutual funds Shelton Capital Nasdaq-100 Index Direct and Fidelity Growth Company have generated returns of 13.16% and 12.86% respectively over the past 20 years.
  • What mutual funds can you invest in?
    • Different types of mutual funds include stock funds, bond funds, balanced funds, money market funds and more. More than 7,000 active mutual funds operated in the United States in 2021.

Data is accurate as of July 13, 2022 and is subject to change.

This article originally appeared on GOBankingRates.com: What is the Average Return of Mutual Funds?

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Dolores W. Simon