To see how these fees affect your return, which by the way is always stated
AFTER expense, click here
Mutual funds have more rules and regulations, especially about disclosure
than any other investment vehicle available. The nature of funds is to buy
and sell securities. This process will incur costs from the brokerage
which, although accounted for in the fund's performance, are not openly
disclosed in any sort of fee table.
There are essentially two kinds of fees involved with a mutual fund. The
shareholder fees are paid directly from your investment. Shareholder fees
it seems is a bulky kind of phrase so mutual companies refer to them as
"loads". A front end load is basically a percentage of your investment
paid upfront. For example, if you found a fund with a front end load of
five percent and you invested $1000, you would have started your investment
with only $950. (5% of $1000 is $950). Back end loads are basically the
same except they are charged at the time you sell. Some of these back end
loads are contingent, meaning that they may very well disappear after a
period of time usually five years or more. It is still a fee and is based
on the assets of the initial years of your holding.
This is why you will so often hear us here at the BlueCollarDollar
suggesting you purchase funds with no-loads. No money up front, no money
owed at the time of redemption. There are no free lunches although and
your investment professional, the folks you hired to take care of your
money, will want some compensation for their efforts. This fee may be as
much as a quarter of a percentage point.
Once again, performance of the fund is more important than the fees that
are charged. Here is an example of performance of a no-load versus a fund
with a load. Click here
And then there is the "annual operating expense". This pays for the
research and the expertise of the management team that you have hired. This
fee is for management expenses. The 12b-1 fee basically is money to pay
for marketing and distribution expenses and the sales pros who do the
selling. the law states that these fees cannot exceed 0.75% of the funds
average net assets per year. No-load funds may not charge more than 0.25%.
If your fund closes for some reason, this fee should cease to be charged
to your fund assets. If it still is part of your annual operating expense,
you might want to call the fund to find out why they would still need money
to market a fund that is generally closed.
These annual operating expenses figure into the expense ratio. The ratio
is determined when the annual operating expense which includes management
fees, 12b-1 fees, administrative expenses, and the cost of sending you
stuff in the mail are figured against the funds total assets. Fund fees,
while important do not necessarily determine performance. You can click
here to see what I mean
Although based on a hypothetical situation, the fee table outlined in the
front of most prospectuses will give you an example of how much you would
pay in overall fees based on a hypothetical amount invested with a
hypothetical return over a period of years. A $1000 left in a fund for ten
years with a return of 5%, operating expenses of 1.1% would cost you
somewhere in the neighborhood of $138.
If you would still like additional information, you can of course write the
folks that oversee the whole operation, the SEC. You can reach them here:
U.S. Securities and Exchange Commission
Office of Investor Education and Awareness
450 Fifth Street, NW
Washington, DC 20549
202/942-7040
or 1-800/SEC-0330
