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How much does mutual funds cost?

A load is simply a charge for buying (or
sometimes for selling) shares in a mutualOperating expenses are all the costs
fund. That chunk of money, which can go asassociated with running the funds and are
high as 8.5 percent, will come straight outdeducted directly from the assets of the
of your investment, with all or part of itfund. They can include management fees to
going to the broker or advisor who sold youcompensate the fund managers, a distribution
the  fund.fee (also called a 12b-1 fee) for marketing
expenses, and other fees to cover shareholder
"When I first began investing I needed adviceservices, such as mailings and the fund's
and paid for it by buying funds with loads.toll-free  phone  service.
It always took a while for a fund to make up
for the cost of the load." --DSB "I've boughtThe expense ratio is the total of all the
both load and no load funds. The loads areoperating expenses, expressed as a percentage
well worth it for the advice I get because Iof  the  fund's  total  assets.
cannot afford to pay an advisor an hourly
fee."  --Jennifer  W.Low-cost index funds might have expense
ratios as low as .2 percent, while a
"I have never bought a load fund because Ihigh-cost actively managed fund might have an
want to keep 100 percent of my money workingexpense  ratio  as  high  as  2.5  percent.
for me. The catch with no-load funds is that
you  have  to  do  the  work."  --Forrest  H.At first glance, it may be easy to brush off
a higher-than-average expense ratio, but
Be sure you're clear about what you'redon't underestimate the difference it can
actually  paying  for  when  you  pay a load.make. For example, let's say you invest
$10,000 for ten years and get annual returns
It is not to get a fund with a superiorof nine percent before expenses. If this
return-there is no evidence that load fundsmoney is in a fund with an expense ratio of
perform any better than no-load funds.1.8 percent, your money will grow to $19,741.
Rather, you're paying for assistance inIf the money is in a fund with an expense
selecting the fund. With thousands of no-loadratio of just .4 percent, however, your
funds to choose from, I personally see noinvestment will grow to about $3,000 more, or
reason to ever pay a load for a fund, unless$22,744.
you absolutely must rely on a
commission-based  advisor.To compare fees between different funds, read
each fund's prospectus. All fund prospectuses
It's important to understand that all fundsare required to present a complete
carry some costs that lower your returns.description of fees in standardized,
Look at these very carefully because a fundeasy-to-read  tables.
with high costs has to perform better than a
low-cost fund just to stay even. My quickAlso, the Securities and Exchange Commission
guide will help you understand the range ofhas an excellent calculator that helps with
fund  fees.expense comparisons on its Web site at
www.sec.gov.
Shareholder expenses are paid for directly by
each  investor  in  the  fund.THE BOTTOM LINE: Historically, load funds
have no advantages over no-load funds when it
They can include sales charges (for loadcomes to investment performance. However,
funds), redemption fees when you sell shares,load charges may be a necessary evil when
exchange fees for transferring money from onedealing with a financial advisor because that
fund to another, and annual accountadvisor deserves to be paid for his or her
maintenance  fees.time and expertise.



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