| Mutual funds are divided into three | | | | were charged a 5% commission. The |
| categories with regards to fees, based | | | | important thing to note is that you must |
| on how much you will have to pay in | | | | hold the shares for a certain number of |
| charges, and commissions - load funds, | | | | years to have these fees waived. If you |
| low-load funds, and no-load funds. As | | | | sell before this time is up, you will be |
| you might expect, load funds typically | | | | charged a fee based on how long you have |
| charge fees, including commissions and | | | | had the shares. The fee typically goes |
| other fees. Low-load funds also charge | | | | down by one percentage point per year, |
| fees, but typically not as much as load | | | | so the longer you keep the shares, the |
| funds. And no-load funds are not | | | | less the fee will be. |
| completely free of charge, either. They | | | | Most funds convert Class B shares to |
| do typically have fees, but they are | | | | Class A shares after the period of |
| usually very low. Bear in mind that | | | | deferred charge ends. |
| even no-load fees will typically charge | | | | There are also Class C shares, which are |
| you a fee if you sell your shares within | | | | typically about 1% per year, and other |
| a certain time frame after purchase. | | | | classes that may be listed in the fund's |
| With mutual funds, the class of shares | | | | prospectus. The prospectus will tell |
| you buy will usually determine the fees | | | | you the fund's specific fees and terms |
| you are charged. Remember, even with | | | | for the various classes. |
| no-load funds, there are still certain | | | | There are typically two types of fees |
| charges involved. Mutual funds aren't | | | | charged by mutual funds. The first |
| usually set up for charity purposes, so | | | | category is transaction expenses. This |
| the fund has to make money, too! | | | | category includes load charges, and the |
| With Class A shares, you will typically | | | | charges that you may incur when selling |
| be charged load charges up front. This | | | | shares. These are paid by the investor. |
| is a sales commission that will usually | | | | Operating expenses include those 12b-1 |
| vary between 2% and 6% of the purchase. | | | | fees mentioned earlier, as well as the |
| For example, if you invest $5,000, and | | | | management fees for the fund. These |
| there is a 5% fee, then you will | | | | amounts are subtracted from the fund's |
| actually only have $4,750 available for | | | | return, and come out of the total made |
| the direct purchase of shares. You will | | | | by the fund before any money is |
| also have fees charged annually. These | | | | distributed to investors. A good mutual |
| annual fees are called 12b-1 fees, and | | | | fund typically has an expense ratio of |
| are charged even by no-load funds. | | | | less than 1.5%. |
| Class B shares typically have higher | | | | Something to bear in mind when choosing |
| 12b-1 fees than Class A shares. These | | | | a fund is to look at the fees as only |
| fees will be based on a percentage of | | | | one part of the big picture. Many |
| the account. The good thing about Class | | | | investors, especially beginners, head |
| B shares is that the up-front | | | | straight for no-load funds because they |
| commissions and fees are usually waived, | | | | don't want to be charged so much in |
| and you can put 100% of your investment | | | | fees. But a fund with high fees might |
| money into shares immediately. The same | | | | vastly outperform a similar fund with |
| $5,000 you had before will buy you | | | | lower fees, thus bringing you much more |
| $5,000 worth of shares instead of the | | | | money, even after the fees are |
| $4,750 you could have purchased if you | | | | considered. |