The index fund made its claim to fame for triggering a decades-long, industry-wide decline in investment-fund fees. The logic is pretty straightforward: You’re paying a lot less for management when “management” is a largely algorithm-based system rather than a team of humans researching and picking stocks.
But if index funds were merely cheap, they wouldn’t have much allure.
We love index funds because many of them are simply better than the competition. The S&P 500 might be ubiquitous because it’s a fitting representation of the U.S. economy, but it also churns out better returns year in and year out than human managers can muster.
While most people equate index funds and exchange-traded funds (ETFs), they’re not the same thing. You can get indexed mutual funds, and they can be every bit as inexpensive as equivalent ETF products. 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.
Today, I’m going to highlight a trio of my favorite indexed mutual funds—two equity products and a bond fund—covering three distinct strategies.
Editor’s Note: The tabular data appearing in this article is up-to-date as of Nov. 2, 2026.
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
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 500 Index Fund
- Style: U.S. large-cap stock
- Assets under management: $850.8 billion
- Dividend yield: 1.0%
- Expense ratio: 0.015%, or 15¢ per year for every $1,000 invested
- Minimum initial investment: None
The Fidelity 500 Index Fund (FXAIX) isn’t just one of the best index funds you can buy—it’s one of the best mutual funds you can buy, period.
The S&P 500 Index is the most common performance benchmark for funds that invest in U.S. large-cap stocks*. However, the majority of fund managers who run these funds typically struggle to beat this benchmark. As I write this, data from S&P Dow Jones Indices shows that 86% of all actively managed large-cap funds have failed to produce a higher average annual return than the S&P 500 over the trailing 10-year period. That number ticks up to 90% for the trailing 15-year period.
“The S&P 500 is so hard to beat,” says Daniel Sotiroff, Senior Analyst for ETF and Passive Strategies at Morningstar. “I know guys that rate active managers in all these categories, and even they’re like, ‘I’m not buying actively managed large blend; I’m just indexing,’ because it’s so brutally tough to beat a dirt-cheap index fund in the large blend category.”
Related: 11 Best Vanguard Funds for the Everyday Investor
What does FXAIX hold?
Fidelity 500 Index Fund tracks the S&P 500—a collection of 500 of America’s largest companies that have met certain size, liquidity, and earnings criteria. This index, which has been around since the 1950s, is considered a reflection of the U.S. economy. But it’s not a perfect representation, nor is the U.S. economy perfectly balanced. Consider that the technology sector accounts for a third of FXAIX’s assets, while real estate, materials, and utilities are weighted at less than 3% apiece.
Like many indexes, the S&P 500 is market capitalization-weighted, which means the greater the size of the company, the more “weight” it’s given in the index. Currently, trillion-dollar-plus tech stocks Nvidia (NVDA), Apple (AAPL), and Google parent Alphabet (GOOGL) sit atop Fidelity 500 Index Fund’s holdings list.
To be clear: Fidelity 500 Index Fund isn’t the only S&P 500 mutual fund. Far from it—numerous fund providers offer these products, sometimes across a variety of share classes. What makes FXAIX stand out from the rest is a combination of traits: It offers one of the lowest fees among S&P 500 trackers, it’s open to retail investors like you and me, and because Fidelity has no investment minimums, you can typically get started for as little as $1.
* There are different ways to define “cap” levels. We’re going by Morningstar’s definition, which says the largest 70% of companies by market capitalization within a fund’s “style” are large-caps, the next 20% by market cap are mid-caps, and the smallest 10% by market cap are small caps.
2. Vanguard High Dividend Yield Index Fund Admiral Shares
- Style: U.S. large-cap dividend stock
- Assets under management: $95.8 billion
- Dividend yield: 2.2%
- Expense ratio: 0.08%, or 80¢ per year for every $1,000 invested
- Minimum initial investment: $3,000
Investors who want a higher level of income than what the S&P 500 provides, but still want to enjoy stocks’ growth potential, can do so for a song by purchasing the Vanguard High Dividend Yield Index Fund Admiral Shares (VHYAX).
What does VHYAX hold?
The name says it all. This Vanguard index mutual fund is constructed to deliver a high dividend yield.
Vanguard High Dividend Yield Index Fund Admiral Shares’ 600 or so components offer decent exposure to sectors defined by their defensive nature and higher-than-average dividends, such as healthcare (14%) and consumer staples (8%). However, its biggest sector allocation is to financials, which currently command more than 21% of assets. Also, understand that if you invest in Vanguard High Dividend Yield Index, you won’t be invested in real estate companies; the fund’s underlying index explicitly excludes real estate investment trusts (REITs).
Related: 10 Best Dividend Mutual Funds to Boost Your Income
Why exclude REITs? They’re among the market’s highest-yielding sectors, after all. Well, one possible explanation is that most common stocks, such as those held in this Vanguard fund, pay qualified dividends, which enjoy favorable tax treatment at the long-term capital gains tax rate. Most REIT dividends, however, are non-qualified and are taxed as ordinary income at federal income tax rates. By excluding REITs, VHYAX can pay out 100% qualified dividend income, helping shareholders avoid a potential tax headache.
Anyways, top holdings are a who’s who of mega-cap dividend payers, including Broadcom (AVGO), JPMorgan Chase (JPM), Johnson & Johnson (JNJ), and Exxon Mobil (XOM). And while it’s difficult to call a sub-3% dividend “high,” it’s certainly much higher than you’d get from normal large-cap stock funds, not to mention about twice what the S&P 500 delivers right now.
VHYAX is also offered in ETF form: the Vanguard High Dividend Yield ETF (VYM, 0.04% expense ratio), which currently trades around $165 per share.
Related: 8 Best AI ETFs for the Artificial Intelligence Era
3. Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares
- Style: Intermediate-term corporate bond
- Assets under management: $68.6 billion
- SEC yield: 5.9%*
- 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.
Related: 7 Best Fidelity Funds for HSAs in 2027
What does VICSX hold?
Vanguard Intermediate-Term Corporate Bond Index Fund Admiral Shares allows you to invest in 2,334 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. The 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 5.9 years, which implies that a 1-percentage-point increase in market interest rates would lead to a 5.9% short-term decline in the fund, and vice versa. And right now, you’re getting paid almost 6% for that risk.
VICSX’s ETF version is the Vanguard Intermediate-Term Corporate Bond ETF (VCIT, 0.03% expense ratio), which goes for about $80 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
Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, our free retirement planning newsletter.
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.
Please Heart ❤️, Follow and Subscribe
Did you find this article helpful?
- Click the Heart Button.
- Follow WealthUpdate —-> https://flipboard.com/@WealthUpdate
- Subscribe to Retire With Riley, our free weekly retirement planning newsletter.
