When anyone talks about how the market has been performing, no one says “Oh yeah, John Doe’s Large-Cap Fund was up 1% today.” They tell you what the S&P 500 or Dow Jones Industrial Average did.
It’s not that they’re necessarily better—but they’re consistent. They’re rules-based indexes that must hold certain types of stocks, and they rotate components in and out pretty infrequently. That’s considerably different than John Doe’s Large-Cap Fund, where Joe can churn stocks at will.
That consistency is just one of the many reasons that people invest in index funds that track the likes of the S&P 500 and Dow, as well as much less ballyhooed and more targeted strategies. Some index funds regularly outperform most managers in their category, and their most popular trait is that they tend to be much more cost-efficient than actively managed products.
The lion’s share of exchange-traded funds (ETFs) are indexed; mutual funds are more prominently human-run. But indexed mutual funds do indeed exist, and are similarly inexpensive. So if you’re dealing with an account in which you have the option to own mutual funds (or if you’re working with a 401(k) in which they’re the only option), it’s helpful to be aware of some of the best index mutual funds in the space.
Read on as I highlight a handful of my favorite indexed mutual funds covering three distinct strategies.
Disclaimer: This article does not constitute individualized investment advice. Individual securities, funds, and/or other investments appear for your consideration and not as personalized investment recommendations. Act at your own discretion.
How I Selected These Funds
I start virtually every review of investment funds by booting up Morningstar Investor and running a quality screen I customize for each article.
If you’re newer to investing: There are plenty of great investment analysis sites out there, but nothing beats Morningstar for information about (and analysis of) mutual funds and ETFs. I use my Morningstar Investor subscription to screen for funds that meet certain quality, price and other criteria for my articles, though investors can also use it to track their portfolio, build watchlists, look at charts and more. (And if you’re curious about Morningstar Investor, read to the end.)
Here’s a look at the criteria I used to narrow my search:
1. Index funds with a Gold Morningstar Medalist rating. Morningstar has two ratings systems—the Star ratings and the Medalist ratings. The latter are a forward-looking analytical view of a fund. Per Morningstar:
“For actively managed funds, the top three ratings of Gold, Silver, and Bronze all indicate that our analysts expect the rated investment vehicle to produce positive alpha relative to its Morningstar Category index over the long term, meaning a period of at least five years. For passive strategies, the same ratings indicate that we expect the fund to deliver alpha relative to its Morningstar Category index that is above the lesser of the category median or zero over the long term.”
A Medalist rating doesn’t mean Morningstar is necessarily bullish on the underlying asset class or categorization. It’s merely an expression of confidence in the fund compared to its peers.
2. No loads. In addition to annual expenses, some funds charge additional fees, including “loads.” For instance, if you invested $10,000 in a mutual fund with a 5% front-end load, the mutual fund company would immediately take $500 out in fees. So, you’d already be starting behind the 8-ball, investing just $9,500 to start with. The funds here have no sales charges.
3. Reasonable investment minimums. The maximum investment minimum for inclusion is $3,000, which is the common investment minimum for Vanguard funds. But most of the remaining funds on this list have either no minimum requirement, or a minimum of just $1. Also, some fund providers explicitly lay out lower investment minimums for specific retirement plans, such as individual retirement accounts (IRAs).
4. Broad availability: Mutual funds commonly have several share classes, many of which are limited to certain types of accounts, like, say, only for 401(k)s or only for wealth management clients. All of the index funds listed here are Investor-class or similar shares that are generally considered to be widely available to retail investors.
3 of My Favorite Index Funds for the Coming Year
From the much more manageable resulting list, I’ve selected a group of index funds that provide a wide array of core and tactical strategies, ensuring there’s at least one fund, if not many funds, for just about everyone.
Let’s take a look at the list!
(Editor’s note: This list is exclusively index mutual funds—but you can find a plethora of great index ETFs in our best ETFs list.)
1. Fidelity Mid Cap Index Fund
- Style: U.S. mid-cap stock
- Assets under management: ~$46 billion
- Dividend yield: 1.1%
- Expense ratio: 0.025%, or 25¢ per year for every $1,000 invested
- Minimum initial investment: None
Mid-cap stocks are a way to thread the needle between the relative size and stability of large-cap stocks and the high growth potential of small-cap stocks. Indeed, this ideal middle ground has earned mid-caps the nickname of “Goldilocks” stocks.
“Since 1978, mid-cap stocks have outperformed small-caps over each of these rolling time periods: five, 10, 20, 30 and 40 years,” says Oregon-based equity manager Jensen Investment Management. “They’ve even bested large-caps over the 30- and 40-year windows. These returns came with lower volatility than small-caps as well, making the evidence even more compelling.
“That means mid-caps haven’t just delivered better performance—they’ve done it more consistently, with fewer drawdowns.”
Fidelity Mid Cap Index Fund (FSMDX) is an exceedingly cost-efficient way to tap this area of the market.
What does it hold?
FSMDX tracks the Russell MidCap Index, which is made up of the 800 smallest stocks in the Russell 1000 (which is itself an index of the U.S. market’s 1,000 largest stocks). As a result, you’re getting exposure to about 800 mostly mid-cap stocks—the fund typically is 75% weighted in mids, with another 5%-10% in smaller large caps, and another 10%-15% in larger small caps.
Related: The Best Fidelity Funds to Buy in 2026
That might seem odd. But it’s pretty commonplace for 20%-30% of a mid-cap fund’s holdings to bleed into small- and/or large-company territory, largely because different fund providers and indexes have different definitions for market-cap ranges. Where FSMDX stands out is that “the index selects larger stocks than most,” Morningstar says. “Larger stocks are generally less volatile, so the portfolio could exhibit lower volatility than its peers.”
Sector weights will naturally change over time as certain businesses come into and go out of favor, but right now, industrials are tops at 17%, followed by technology (15%), financials (14%), and consumer discretionary (12%). Also, thanks to both the market cap-weighting of the Russell MidCap Index and the high number of holdings, single-stock risk is minimal; currently, every stock is weighted at less than 1%.
A sound methodology for Wall Street’s mid-sized companies, dirt-cheap fee, and strong historical performance all make FSMDX one of the best index funds you can buy.
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2. Vanguard Dividend Appreciation Index Fund Admiral Shares
- Style: U.S. large-cap dividend stock
- Assets under management: ~$120 billion
- Dividend yield: 1.6%
- Expense ratio: 0.07%, or 70¢ per year for every $1,000 invested
- Minimum initial investment: $3,000
Not all dividend funds provide a high yield—or even try to. Occasionally, dividend funds such as the Vanguard Dividend Appreciation Index Fund Admiral Shares (VDADX) have different goals in mind.
Why? Well … without getting too far into the weeds, high dividends can sometimes be the result of significant price drops, and in some cases might not be sustainable.
What does it hold?
VDADX targets U.S. companies that consistently increase their cash distributions over time. Its underlying index is made up of firms that have improved their payouts on an annual basis for at least 10 consecutive years. High yield isn’t a priority. In fact, VDADX’s underlying index excludes the 25% highest-yielding eligible companies, implying that high current yields are actually a liability.
That said, VDADX’s different view on dividends produces two important potential benefits:
- High quality: Only firms with strong financials and excellent cash flows can afford to keep paying shareholders more every year. So, in a way, VDADX’s commitment to dividend growers acts like a quality screen, ensuring you’re owning a higher grade of stock.
- Higher yield on cost over time: These companies might not yield much right now, but if they continue raising their dividends, you should enjoy a higher “yield on cost”—what you’re actually earning based on the price at which you bought an investment. (Example: A $100 stock paying $1 in annual dividends yields 1% [$1 / $100 = 1%]. But if you bought the stock at $50 a couple of years ago, your yield on cost is actually 2% [$1 / $50 = 2%] … plus you enjoyed a 100% price gain along the way.)
VDADX holds roughly 340 predominantly large-cap stocks with bulletproof balance sheets and the ability to churn out cash—which they increasingly fork over to shareholders in the form of dividends. All of these dividend-growth stocks have raised their payouts for at least 10 years, but some have much longer histories of uninterrupted improvement. That includes Dividend Aristocrats, which are stocks that have raised their cash distributions annually for at least 25 consecutive years. And it even includes a few Dividend Kings (Aristocrats whose streaks are at 50 years or longer) such as Procter & Gamble (PG) and J&J.
However, like Vanguard High Dividend Yield Index, you won’t get any exposure to REITs here, either.
I mentioned above that all the Vanguard index funds on this list have relatively low expenses. VDADX is a great example. The average fee on large-cap funds like this is 0.68%, according to Morningstar. But Vanguard Dividend Appreciation charges a mere 0.07%.
Fees are even lower for VDADX’s ETF class, Vanguard Dividend Appreciation ETF (VIG, 0.05% expense ratio), which goes for about $225 per share.
Related: 10 Best Dividend Mutual Funds to Boost Your Income
3. Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares
- Style: Intermediate-term corporate bond
- Assets under management: ~$62 billion
- SEC yield: 4.8%*
- Expense ratio: 0.06%, or 60¢ per year for every $1,000 invested
- Minimum initial investment: $3,000
Most investors will want some exposure to bonds—debt issued by governments, companies, and other entities that pay interest to bondholders. But how much exposure you want will largely depend on your age.
Bonds tend to be much less volatile than stocks, for better or worse; it limits downside, yes, but it also limits upside. Instead, most of the return from bonds comes from the steady stream of interest income they produce. They’re not great for generating wealth, which is your prime concern when you’re younger, but they’re outstanding for protecting wealth, which becomes increasingly pivotal as you age.
However, making an educated purchase of a single bond is tougher than you might expect. Data and research on individual issues is much thinner than it is for publicly traded stocks, plus, some bonds have minimum investments in the tens of thousands of dollars. So, your best bet is to buy a bond fund, which can provide you with access to hundreds if not thousands of bonds. Your most economical bet is to do so through bond funds.
Take the Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares (VICSX) for instance.
What does it hold?
VICSX allows you to invest in more than 2,200 investment-grade corporate bonds with maturities of between five and 10 years.
Investment-grade corporates are a little riskier than similar-maturity Treasuries, but you get a bit more yield as a result … and they’re not exactly poor-quality bonds. VICSX’s portfolio is split roughly 50/50 between BBB-rated bonds (the lowest investment-grade rating) and A-rated or above. Meanwhile, the focus on intermediates provides a fair blend of risk and income.
Duration (a measure of interest-rate risk) is 6.0 years, which implies that a 1-percentage-point increase in market interest rates would lead to a 6.0% short-term decline in the fund, and vice versa.
VICSX’s ETF version is the Vanguard Intermediate-Term Corporate Bond ETF (VCIT, 0.03% expense ratio), which goes for about $85 per share.
* SEC yield reflects the interest earned across the most recent 30-day period. This is a standard measure for funds holding bonds and preferred stocks.
Related: Best Target-Date Funds: Fidelity vs. Schwab vs. T. Rowe vs. Vanguard
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Learn More About These and Other Funds With Morningstar
As I mentioned before, Morningstar Investor is a vital tool in my research, but it’s primarily designed for investors. And because the folks at Morningstar appreciate my years of citing their tool in my research, they’re allowing us to offer their Investor service at a discounted rate.
If you sign up using my exclusive link, you’ll not only get a 20% discount ($199) off the normal annual rate ($249), but you’ll also get a free 7-day trial so you can give it a go first!
Editor’s Note: This is a shorter, updated, and modified version of our full exploration of the market’s top index funds. If you want to see all 10 selections for 2026, check out our article, The 10 Best Index Funds You Can Buy for 2026.
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