Mutual Fund Fees

Mutual funds investment companies deserve to be paid for their efforts and the returns that they obtain for their client. What are these fees? Fees can be put into 3 categories.

The first is management expense to do the investing. This is the cost of doing business.

The second is sales charges that is paid to others to sell the product such as a distributor or selling group member. This charge can be as much as 8.5% and benefits the mutual fund company not the investor. From the previous blog, it can hurt the investor in both cost and mediocre fund performance. This can be avoided by buying a no-load fund.

The third is 12B-1 that is an annual fee to promote and distribute fund shares. A no-load fund can charge up to a 0.25% annual fee. A load fund can charge up to a 0.75% annual fee.

Sales charges and high 12B-1 fees can cost you a lot of money. STOP paying them and put the money in your pocket.

In the book, Random Walk Down Wall Street, some research showed the impact of these fees.

1. From 1977 - 1997 an index fund beat the average fund by 2% after fees are considered.
2. From 1988 - 1998 less than 20% of the mutual funds beat an industry average index after fees.

Bottom Line: Either buy a low fee index fund or one of the top 20%. It's your money, put it in your pocket.