Costs Associated With Mutual Funds

Costs Associated With Mutual Funds

Mutual funds offer inherent diversification and the convenience of having a professional money manager handle day-to-day investment decisions. However, these luxuries do not come without a cost.

Sales Load: basically the commission you pay a broker to advise you on which fund(s) to choose, ranging from 1% to 7% of your investment. It can come at the front end, when you buy into the fund, or at the back end, when you cash out of the fund. However, there are load and no-load mutual funds, so it’s up to you whether you’d rather seek out advice and pay for it or make your own mutual fund choices and avoid the sales load.

Redemption Fee: if you sell the shares in your mutual fund after a short period of owning them–usually anywhere from 90 days to 3 years, you may have to pay a percentage fee on the money you cash out. This fee is usually about .25% of the redemption amount.

12(b)1 Fee: some funds charge this fee as a means of disbursing the costs of marketing and advertising the fund among all of its shareholders.

Maintenance Fee: an annual fee, often expressed as a percentage of assets under management that is charged each year to cover the cost to administer and manage the fund.