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Fees, What Fees?

Learn about these fees and how they are calculated

When evaluating mutual funds, one of the key pieces of information that should be researched is how much does it cost?

Below are the different types of annual fund expenses that are typically seen with mutual funds. To find the exact expenses for each fund, one must dig through the Prospectus and search for the Annual Fund Operating Expenses.

  • Management Fee: Management Fees are paid to the fund’s investment adviser for managing the fund’s investment portfolio.
  • Distribution/Services: Also known as 12b-1 fees, these fees are paid by the fund to cover distribution expenses and shareholder holder service expenses as well as to pay for the marketing and selling of the fund’s shares.
  • Other Expenses: These are the expenses that are not included in the other lines. Examples include expenses for legal and accounting services, custody expenses and other administrative expenses.

Fees range from fund to fund and must be looked at in relation to a specific fund basis, as there are many different variables that play into fee levels. For example, a fund that has generated 5% returns over the past 10 years and has charged 1.0% would show a net return of 47.3%. While a fund with the same return characteristics that had been charging 1.5% would show a net return of 40.0% over the same period. The difference in returns is attributable to the higher expenses over the time period and the compounding of returns that accrues over the 10-year period.


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