Brokerage Account vs. Mutual Fund

Comparing brokerage accounts vs. mutual funds is a little like comparing apples and oranges. While mutual funds are professionally managed investment products, brokerage accounts are used for purchasing individual securities, including mutual funds. Here we explain how each works while exploring what sets them apart from each other. Before making your next investment, this is what to consider when choosing between a brokerage account vs. mutual fund for your portfolio.

Consider working with a financial advisor for help selecting mutual funds or managing your portfolio.

What Is a Mutual Fund?

A mutual fund is a professionally managed investment fund that pools money from members of the public and invests it in a variety of securities, including stocks, bonds and other types of investments. According to the Investment Company Institute, there were more than 7,000 types of mutual funds registered in the U.S. by the end of 2025.

Investing in a mutual fund offers greater diversification compared to buying individual shares of company stock, as it spreads your money across multiple companies, industry market sectors and asset classes. Some funds seek to maximize capital gains, while others primarily invest in companies that generate dividends. Some may exclusively hold either stocks or bonds, while balanced funds have portfolios that comprise both.

A fund can also be highly specialized and only invest in a certain sector, like real estate or energy, or seek to capture the returns of the broader market.

Mutual funds also vary based on the type of investment management they offer, with both actively and passively managed funds available.

Actively managed funds have investment managers responsible for selecting the fund’s underlying assets and conducting trades on behalf of the investors.
Passively managed funds, on track particular indexes, like the S&P 500 or Nasdaq. These funds do not aim to outperform the market. Instead, they seek to mirror a specific index and duplicate its performance. As a result, passive funds often have lower fees and result in fewer transactions than their active counterparts.

Diversification and professional management come at a cost. Mutual funds charge their shareholders expense ratios, which include a percentage of your total account value that is paid annually for management fees. For example, if you had $10,000 invested in a fund with a 0.50% expense ratio, you would pay $50 in annual fees.

What Is a Brokerage Account?

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A brokerage account is a taxable investment account that can be used to buy and sell stocks, bonds, mutual funds and other securities. Some brokerage accounts also allow investors to deal in futures, options, trade on margin or invest in initial public offerings (IPOs).

Brokerage accounts are also referred to as taxable accounts because their profits are subject to capital gains tax. Assets earning interest or generating dividends are also taxed. This is different from a tax-advantaged retirement account, like an IRA or 401(k), which defers taxes until money is withdrawn.

You can open a brokerage account through a traditional full-service brokerage firm, a fiduciary financial advisor or online through a robo-advisor or discount broker. The cost of opening and maintaining a brokerage account varies, depending on where the account is held.

Brokerage Account vs. Mutual Fund: Key Differences

Understanding the key differences between a brokerage account vs. mutual fund is especially important for new investors. Brokerage accounts and mutual funds are structured differently, charge different types of fees and offer varying degrees of asset selection.

These are four key differences.

Structure

The primary difference between a brokerage account vs. mutual fund is the structure. While the former is a type of investment product, the latter is an account for buying and selling securities.

In other words, brokerage accounts can be used to buy and sell mutual funds, but mutual funds cannot be used as brokerage accounts.

Fees

As mentioned above, mutual funds charge their shareholders fees in the form of expense ratios. Those with traditional brokerage accounts, on the other hand, typically pay trading fees that can include transaction fees and/or trading commissions. For those with brokerage accounts through fiduciary financial advisors, there is typically an asset-based advisory fee, in addition to the expense ratios.

A robo-advisor can be a more cost-effective way to invest, since these platforms use algorithms to build and manage investment portfolios. These digital advisors typically charge annual fees of around 0.25% of assets under management, compared to the average 1.65% fee charged by many human advisors.

Asset selection

While there is a diverse and wide-ranging pool of mutual funds, investors do not have the option of selecting individual securities within a fund. Whether a mutual fund is actively or passive managed, its investors cannot allocate their assets to certain holdings within a fund and avoid others.

This differs from a brokerage account, which offers total control over your assets. This includes the option to buy and sell individual securities at your leisure instead of relying on a fund manager or an index to tweak the underlying holdings of a fund.

Then again, many investors are willing to forfeit that level of control in exchange for the convenience and efficiency of a mutual fund. It is why many choose to invest in mutual funds through brokerage accounts.

Minimum investments

While many brokerage accounts typically do not have a required minimum investment size, mutual funds often do. These minimums can be as little as $500 but can top $1,500.

However, that does not apply to all fund companies. Fidelity, for example, does not require a minimum account size for investors buying its mutual funds.

Brokerage Account vs. Mutual Fund: Key Similarities

Despite these fundamental differences, brokerage accounts and mutual funds also share several significant similarities.

Diversification

An investor can build a diversified portfolio by either buying mutual funds or opening a brokerage account.

An investor solely interested in owning mutual funds can own index funds that track the market as a whole or multiple funds that focus on individual sectors or industries. That same level of diversification can be achieved using a brokerage account by either investing in mutual funds, exchange-traded funds or individual securities.

If an investor opts for individual securities, it will likely require significantly more research, time and energy to compile an adequately diversified portfolio, but it can be done.

Taxation

For the most part, mutual funds and brokerage accounts are taxed the same way.

Assets that are held for under a year before being sold are subject to short-term capital gains taxes.
Those held for more than a year before being sold are taxed at the more favorable long-term capital gains rate. This is 0%, 15% or 20%, depending on the investor’s federal income tax bracket.

Their dividends are also taxed differently.

Ordinary dividends are taxed as ordinary income, meaning an investor must pay federal taxes on the income at their regular rate.
Qualified dividends receive the same tax treatment as long-term capital gains.

Professional management

Mutual funds and brokerage accounts both offer some level of professional management.

Mutual funds, especially those that are actively managed, have financial professionals selecting securities and making transactions that affect the net asset value of the fund. With the exception of self-directed accounts, brokerage accounts can also be professionally managed, either by a broker or a financial advisor.

Many financial advisors offer both discretionary and non-discretionary asset management. The former grants the advisor authority to make trades within a client’s account, while the latter requires the client to sign off on individual transactions and maneuvers.

When Should You Choose a Mutual Fund or a Brokerage Account?

Deciding between investing directly in mutual funds or using a brokerage account depends on your goals, experience and the level of involvement you want to have in managing your investments.

Mutual funds may make more sense if you are looking for a simple, hands-off way to invest. Because they are professionally managed and inherently diversified, they work well for investors who want exposure to a range of securities without having to select individual stocks or bonds. Mutual funds are also a good choice if you are just getting started or prefer to contribute a set amount regularly without actively monitoring your portfolio.

A brokerage account offers far more flexibility and control. Through a brokerage account, you can buy not only mutual funds but also individual stocks, bonds, exchange-traded funds (ETFs), options and other investments. This is ideal for investors who want to build a customized portfolio, pick and choose their investments or explore more advanced strategies. Brokerage accounts also make sense if you want the ability to trade frequently, access specialized investments or take a more active role in managing your money.

Ultimately, mutual funds and brokerage accounts can complement each other. Many investors use a brokerage account as their platform, filling it with mutual funds alongside other investments to create a strategy that is both diversified and tailored to their needs.

Bottom Line

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When comparing mutual funds and brokerage accounts, it is important to understand that mutual funds are investments in and of themselves. Brokerage accounts are places where investors can buy and sell securities, including mutual funds. Mutual funds and assets that are held in a brokerage account are generally taxed in the same manner. However, mutual funds often require a minimum investment, while brokerage accounts generally do not.

Consulting a financial advisor can help compare the benefits of a brokerage account vs. mutual fund to see which one is right for you based on your investment goals.

Tips for New Investors

Need help with your portfolio? A fiduciary financial advisor can build a portfolio for you that aligns with your financial goals and time horizon. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When you consider selling an investment, be mindful of your potential tax liability. SmartAsset’s capital gains tax calculator can help you estimate how much you’ll owe in taxes based on how long you’ve owned the asset, as well as its initial and current value.