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