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What are some of the fees associated with investing in Mutual Funds?
It's the "Expense Ratio," stupid...

The way to measure mutual funds and fairly compare the fees from one to the other is to look at their fees as a percentage of the fund's assets.  Therefore, that is the basic definition of the "expense ratio"...  the percentage of the fund's assets used to pay all operating expenses.

This is the most important thing to know:
Definition:  
"The Mutual Fund Expense Ratio"...

  The total operating expenses/fees as a percentage of a mutual funds total assets.

Example:  CGM Focus Fund
In general, expense ratios tend to go down when the fund's assets go up or expenses go down. Conversely, expense ratios tend to go up when assets fall or expenses rise.

Making Apples-to-Apples Comparisons of Mutual Fund Fees
When you look at the reported quarterly SEC forms that every mutual fund is required to file, you can make apples-to-apple comparisons of the fees that funds charge in three areas, as a percentage of total fund assets, as follows:

This provides the fee percentages of total assets within
Ken Heebner's CGM Focus Fund (6/30/09):

  Management Fees: 0.91 %
  Distribution (12b-1) Fees: 0.00 %
  Other Expenses: 0.45 %
  Total Fund Operating Expenses: 1.36 %


Let's take a closer look at some common mutual fund fees:
 

NEXT: Example of a top mutual fund >>

Mutual Fund Fees:
1.  Transaction Fees
  Transaction Fees can include Purchase Fees, Redemption Fees, and Exchange Fees, as detailed below:

2.  Purchase Fees
  Some mutual funds charge their shareholders at the time shares are bought. Different from a front-end sales "load," a Purchase Fee contributes to the fund's overall assets, not to the broker, and is used to defray real costs to the fund, that are associated with that purchase.

3.  Redemption Fees
  A Redemption Fee is charged to shareholders by some mutual funds when they sell or "redeem" shares. Different from a back-end, deferred sales "load," a Redemption Fee contributes to the fund's overall assets, not to the broker, and is used to defray real costs to the fund, that are associated with that shareholder's redemption.

4.  Exchange Fees
  This is a fee that some mutual funds charge if they transfer their investment to another mutual fund within the same "family of funds," usually within the same investment group.

5.  Periodic Fees
  Periodic Fees can include Management Fees and Account Fees, as detailed below:

6.  Management Fees
  Management Fees are paid out of the mutual fund's assets to the mutual fund manager (also known as the "investment adviser") for his/her portfolio management. These may also include any other management fees paid to the Mutual Fund Manager or his/her affiliate, and all administrative fees are are not included under "Other Operating Expenses" (below).

Management Fees may also be called "Maintenance Fees."

7.  Account Fees
  Account Fees are imposed by some Mutual Funds attributed to the simple maintenance of shareholder accounts. Some funds will only charge Account Fees if the shareholder's account value is less than an imposed minimum dollar amount.

8.  Other Operating Expenses
  Other Operating Expenses are costs incurred from trading the fund's assets. Funds that trade more frequently and aggressively, or that invest in more exotic investment vehicles or markets, usually will incur higher transactions costs. Note that, unlike the total expense ratio calculation, these costs are usually not included or reported to shareholders.

 

NEXT: Example of a top mutual fund >>
 

 
 
 

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