Consider fees and expenses As with any business, running a mutual fund involves costs. Funds pass along these costs to investors through fees and expenses. It is important to understand these charges because they can lower returns. All fees and operating expenses must be disclosed within a fund’s prospectus, so be sure to carefully review the fee tables of any funds you’re considering.
Shareholder fees Sales charge on purchases (load)
The amount paid when purchasing shares of a mutual fund. This is also known as a “front-end load.” This fee is typically used to pay the intermediary that sells the fund’s shares and will reduce the amount of your investment. If you invested $1,000 in a mutual fund with a 5% front-end load, the $50 sales load is paid immediately, and the remaining $950 gets invested in the fund. A type of fee that some funds charge their shareholders when they purchase shares. Unlike a front-end sales load, a purchase fee is paid to the fund (not to a broker) and is typically imposed to defray some of the fund’s costs associated with the purchase. A fee paid when an investor sells shares. This is also referred to as a “back-end load” and typically goes to the brokers that sell the fund’s shares. The most common type of back-end sales load is the contingent deferred sales charge (CDSC). The amount of this type of load depends on how long the investor holds his or her shares and decreases to zero if the investor holds his or her shares long enough. Another type of fee some funds charge their shareholders when they sell or redeem shares. Unlike a deferred sales load, this fee is paid to the fund (not to a broker) and is typically used to defray fund costs associated with a shareholder’s redemption. A fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group or “family of funds.” A fee that some funds impose on investors in connection with the maintenance of their accounts. For example, a maintenance fee on accounts whose values are less than a certain dollar amount. These fees are paid out of fund assets to the fund’s investment advisor for investment portfolio management, other management fees payable to the fund’s investment advisor or its affiliates, and administrative fees payable to the investment advisor that are not included in the “Other Expenses” category (discussed below). These fees are paid by the fund out of fund assets to cover the costs of marketing and selling fund shares and sometimes to cover the costs of providing shareholder services. Distribution fees include fees to compensate brokers and others who sell fund shares and to pay for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature. These are expenses not included under “Management Fees” or “Distribution (12b-1) Fees,” such as any shareholder service expenses not already included in the 12b-1 fees, custodial expenses, legal and auditing expenses, transfer agent expenses, and other administrative expenses. This represents the line of the fee table that displays the total annual fund operating expenses, expressed as a percentage of the fund’s average net assets. Looking at the expense ratio can help you make comparisons among funds.
Purchase fee
Deferred sales charge (load)
Redemption fee
Exchange fee
Account fee
Annual fund operating expenses Management fees
Distribution (12b-1) fees
Other expenses
Total annual fund operating expenses (expense ratio)
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