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Fees Associated with Mutual Funds

Mutual funds are divided into threewere charged a 5% commission. The
categories with regards to fees, basedimportant thing to note is that you must
on how much you will have to pay inhold 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. Assell before this time is up, you will be
you might expect, load funds typicallycharged a fee based on how long you have
charge fees, including commissions andhad the shares. The fee typically goes
other fees. Low-load funds also chargedown by one percentage point per year,
fees, but typically not as much as loadso the longer you keep the shares, the
funds. And no-load funds are notless the fee will be.
completely free of charge, either. TheyMost funds convert Class B shares to
do typically have fees, but they areClass A shares after the period of
usually very low. Bear in mind thatdeferred charge ends.
even no-load fees will typically chargeThere are also Class C shares, which are
you a fee if you sell your shares withintypically 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 sharesprospectus. The prospectus will tell
you buy will usually determine the feesyou the fund's specific fees and terms
you are charged. Remember, even withfor the various classes.
no-load funds, there are still certainThere are typically two types of fees
charges involved. Mutual funds aren'tcharged by mutual funds. The first
usually set up for charity purposes, socategory is transaction expenses. This
the fund has to make money, too!category includes load charges, and the
With Class A shares, you will typicallycharges that you may incur when selling
be charged load charges up front. Thisshares. These are paid by the investor.
is a sales commission that will usuallyOperating 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, andmanagement fees for the fund. These
there is a 5% fee, then you willamounts are subtracted from the fund's
actually only have $4,750 available forreturn, and come out of the total made
the direct purchase of shares. You willby the fund before any money is
also have fees charged annually. Thesedistributed to investors. A good mutual
annual fees are called 12b-1 fees, andfund typically has an expense ratio of
are charged even by no-load funds.less than 1.5%.
Class B shares typically have higherSomething to bear in mind when choosing
12b-1 fees than Class A shares. Thesea fund is to look at the fees as only
fees will be based on a percentage ofone part of the big picture. Many
the account. The good thing about Classinvestors, especially beginners, head
B shares is that the up-frontstraight 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 investmentfees. But a fund with high fees might
money into shares immediately. The samevastly outperform a similar fund with
$5,000 you had before will buy youlower fees, thus bringing you much more
$5,000 worth of shares instead of themoney, even after the fees are
$4,750 you could have purchased if youconsidered.



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