Investing in a Mutual Fund Isn't Cheap

The process of mutual fund investing can provide investors with a number of unique benefits. You can diversify your account, bring a nice return on your investment and do so with minimal effort. However, this form of investment is not free. Here are a few of the costs that are associated with mutual funds and how they impact you as an investor.

Management And Operating Expenses

One of the most common fees that is charged by mutual funds is known as management and operating expenses. This is also sometimes referred to as MER. Management and operating expenses deals with the cost associated with the day-to-day operations of the fund. This is often paid as a percentage of the total assets that are held in the portfolio. The mutual fund is in charge of calculating this percentage and deducting it from the portfolio. Therefore, as an investor, it could be difficult to keep up with his expense. This fee covers all of the expenses that are associated with the mutual fund such as, marketing, legal fees, accounting and pays the fund managers as well.

Since this is based on a percentage of the total volume of the account, it could be a substantial amount of money. Therefore, the bigger the fund gets, the larger of this fee becomes.

Load Fees

Another fee that you could incur is known as a load fee. A load fee is an amount of money that you pay as a result of buying and selling shares in the mutual fund. Each time you make a transaction, you will be charged a certain amount of money. Therefore, this gives you an incentive to hold your shares as long as possible. However, when you are trying to invest with a long-term strategy and buy as many shares as possible, this could have a big effect on you.

Trailer Fees

Trailer fees are another type of the that you may pay as a result of buying into mutual fund. These fees are paid out yearly to the investment advisers that sell shares in the fund. This could be considered a referral fee for your investment adviser. Ultimately this cost comes from you, the mutual fund buyer. While it might not be an advertised cost, it is coming out of your pocket in the long run.

How Fees Affect You

Many investors fail to realize the impact that fees have on their mutual fund investing. While it might not seem like much at the time, the fees that are associated with mutual funds can be substantial. Every dollar that you pay in fees, is one less dollar that you will make as a return. While the returns might look great on paper, after taxes and mutual fund fees are deducted, the return might not be as good as advertised. Ultimately everyone gets into investing to make money. Therefore, these fees go against your objective as an investor.

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