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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:
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This provides the fee
percentages of total assets
within
Ken Heebner's CGM Focus Fund
(6/30/09): |
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Management Fees: |
0.91 % |
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Distribution (12b-1) Fees: |
0.00 % |
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Other Expenses: |
0.45 % |
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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 >>
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Mutual Fund Fees: |
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1. Transaction Fees |
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Transaction Fees can include
Purchase Fees, Redemption Fees, and
Exchange Fees, as detailed below: |
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2. Purchase Fees |
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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. |
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3. Redemption Fees |
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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. |
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4. Exchange Fees |
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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. |
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5. Periodic Fees |
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Periodic Fees can include Management
Fees and Account Fees, as detailed
below: |
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6. Management Fees |
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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." |
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7. Account Fees |
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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. |
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8. Other Operating Expenses |
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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. |
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NEXT: Example of a top mutual fund >>
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