Mutual Fund Fees

As you might expect, fees and expenses vary from fund to fund. A fund with high costs must perform better than a low-cost fund to generate the same returns for you. Even small differences in fees can translate into large differences in returns over time.

For example, if you invested $10,000 in a fund that produced a 10% annual return before expenses and had annual operating expenses of 1.5%, then after 20 years you would have roughly $49,725. But if the fund had expenses of only 0.5%, then you would end up with $60,858.

These fees and charges are identified in a fee table, located near the front of a fund’s prospectusShareholder Fees

Sales LoadsFunds that use brokers to sell their shares typically compensate the brokers. Funds may do this by imposing a fee on investors, known as a "sales load" (or "sales charge (load)"), which is paid to the selling brokers. In this respect, a sales load is like a commission investors pay when they purchase any type of security from a broker.

There are two general types of sales loads—
a front-end

a back-end or deferred sales

Sales Charge (Load) on PurchasesA front-end sales load investors pay when they purchase fund shares .The key point to keep in mind about a front-end sales load is it reduces the amount available to purchase fund shares.

Deferred Sales Charge (Load)A back-end or deferred sales load investors pay when they redeem their shares.When an investor purchases shares that are subject to a back-end sales load rather than a front-end sales load, no sales load is deducted at purchase, and all of the investors’ money is immediately used to purchase fund shares (assuming that no other fees or charges apply at the time of purchase)

No-Load FundsAs the name implies, this means that the fund does not charge any type of sales load. As described above, however, not every type of shareholder fee is a "sales load," and a no-load fund may charge fees that are not sales loads. For example, a no-load fund is permitted to charge purchase fees, redemption fees, exchange fees, and account fees, none of which is considered to be a "sales load."

Redemption Fee A redemption fee is another type of fee that some funds charge their shareholders when the shareholders redeem their shares. Redemption fee is not considered to be a sales load. Unlike a sales load, which is used to pay brokers, a redemption fee is typically used to defray fund costs associated with a shareholder’s redemption and is paid directly to the fund, not to a broker.

Exchange Fee An exchange fee is a fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group.

Account Fee An account fee is a fee that some funds separately impose on investors in connection with the maintenance of their accounts

Purchase FeeA purchase fee is another type of fee that some funds charge their shareholders when the shareholders purchase their shares. A purchase fee is not considered to be, a front-end sales load because a purchase fee is paid to the fund (not to a broker)

Management FeesManagement fees are fees that are paid out of fund assets to the fund’s investment adviser (or its affiliates) for managing the fund’s investment portfolio , and administrative fees payable to the investment adviser that are not included in the "Other Expenses" category (discussed below).

Total Annual Fund Operating Expenses

This line of the fee table is the total of a fund’s annual fund operating expenses, expressed as a percentage of the fund’s average net assets.

TaxTaxesWhen a fund manager sells a stock for a gain, the law says it becomes a taxable event. That transaction may be offset by any losses the manager incurs when he sells a doggy stock. But if the sum of all the transactions during the year equals an overall gain, somebody has to pay the tax billThese gains are paid out in the form of taxable distributions. There's nothing worse than ending the year with a fat one you weren't expecting. It's even more bitter when the gain falls into the short-term category -- a big problem with fund managers who trade often. Short-term gains are taxed as regular income instead of at the lower 20% tax rate levied on long-term capital gains

Before investing in any mutual fund be sure to review the prospectus carefully. If you have any questions about the fund, be sure to consult your financial or investment advisor