Fees of Mutual Bond Funds

Investing in mutual bond funds can be a good way to take advantage of professional management and make some nice returns. However, in return for this level of management, you are going to have to pay some fees. Here are some of the fees that you might have to pay when you invest in a mutual bond fund.

Sales Charge

In many cases, you will have to pay a sales charge. This is also referred to as a commission or load. Some funds charge a percentage on the front end of the transaction, while others charge you a percentage on the back end. This is simply a percentage that is generally used to compensate the brokers that sell shares in the fund.

Redemption Fee

Another fee that you might have to pay is the redemption fee. This is a fee that is charged when you sell your shares of a mutual fund. This fee is designed to keep people from getting into and out of a mutual fund quickly. The transaction costs of the entire fund have to be shared among all of the investors. Therefore, with this fee, they are hoping to cover some of the transaction costs for all of the other investors.

Exchange Fees

The exchange fee is another fee that you might be charged in some cases. This type of fee is going to be charged when you transfer to another mutual fund within the same family of funds. This is simply to cover some of the transaction costs involved.

Management Fees

Management fees are charged in order to pay the fund managers' salaries. The fund managers make all of the individual investment decisions for the fund. Because of this level of responsibility, they are well compensated, and a portion of everyone's money goes towards their salaries.

Distribution Fees

Some mutual funds are also going to charge a distribution fee. The distribution fee is the amount of money that is needed to market the fund. The money that is collected with this fee is used to pay for advertising and direct mail marketing. Many investors do not like this fee because they are not actually getting anything out of it. They are simply paying the mutual fund company to bring in more customers and help themselves. These fees are also known as 12b-1 fees. 

Other Expenses

The fund is also likely to have a category of expenses known as "other expenses." This vague category can cover a variety of things. Typically, this category of expenses will cover things like legal fees, janitorial expenses, administration expenses, transfer agent expenses and any other overhead expenses that might be incurred. These are expenses that are necessary in order to provide the fund to the investors. They may not be directly related to investing, but in order to conduct business, they have to have these expenses.

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