Knowing Your Mutual Fund Shareholder Fees

Understanding the different mutual fund fees that are commonly charged can help you become a more effective investor. You should be able to look at different mutual funds and compare the fees intelligently. Here are some of the different types of fees that mutual funds typically charge.

Sales Fees

Many mutual funds charge some type of sales fee to you as a way to reimburse financial advisors. If you are working with a financial advisor when you purchase shares of a mutual fund, the advisor is going to get a certain percentage of your purchase. This sales fee could be charged in a number of different ways and be called different things. For example, if a mutual fund has what is called a "front-end load," this means that they are charging you a percentage on the front end of the transaction. As soon as you buy your shares, they are going to charge a fee and give it to the introducing broker.

Another type of sales fee that mutual funds charge is the back-end load. If a mutual fund has this type of fee, you will pay nothing on the front end of the transaction. However, when you sell your shares of the fund, you will then pay a sales commission. With this fee, the longer you hold your shares in a mutual fund, the lower the fee will become. In some cases, the fee will completely disappear.

Redemption Fee

A redemption fee is another type of fee that some mutual funds will charge. This is a separate charge from any sales fees that you might have to pay. This fee will be charged when you redeem your shares in the mutual fund. This fee is often used to discourage people from quickly buying and selling shares in a mutual fund.

Management Fees

Management fees are a fee that will come out of the assets of the fund. This is part of the expense ratio of a mutual fund. This fee will cover the salaries of the fund managers and any other costs associated with professional money management.

12b-1 Fees

12b-1 fees are also sometimes referred to as distribution fees. Not every mutual fund will charge for this fee. The 12b-1 fee is a fee that is charged in order to recoup the costs of distribution and marketing for a mutual fund. If you see a commercial or advertisement for a mutual fund, it was most likely paid for with 12b-1 fees. This fee has been the subject of a lot of controversy with investors in recent years. This is because it does not actually provide any benefit for the existing investors in a fund. This fee is designed to bring on more investors, which does not actually help those that are already involved.

Other Expenses

Some mutual funds will also have other expenses that are charged. These fees will cover administration costs of the fund, accounting costs, legal costs, and any other costs that are not covered by any other category.

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