How much does mutual funds cost?

A load is simply a charge for buying (orwith running the funds and are deducted directly
sometimes for selling) shares in a mutual fund.from the assets of the fund. They can include
That chunk of money, which can go as high asmanagement fees to compensate the fund
8.5 percent, will come straight out of yourmanagers, a distribution fee (also called a 12b-1
investment, with all or part of it going to thefee) for marketing expenses, and other fees to
broker or advisor who sold you the fund.cover shareholder services, such as mailings and
"When I first began investing I needed advice andthe fund's toll-free phone service.
paid for it by buying funds with loads. It alwaysThe expense ratio is the total of all the operating
took a while for a fund to make up for the costexpenses, expressed as a percentage of the
of the load." --DSB "I've bought both load and nofund's total assets.
load funds. The loads are well worth it for theLow-cost index funds might have expense ratios
advice I get because I cannot afford to pay anas low as .2 percent, while a high-cost actively
advisor an hourly fee." --Jennifer W.managed fund might have an expense ratio as
"I have never bought a load fund because I wanthigh as 2.5 percent.
to keep 100 percent of my money working forAt first glance, it may be easy to brush off a
me. The catch with no-load funds is that youhigher-than-average expense ratio, but don't
have to do the work." --Forrest H.underestimate the difference it can make. For
Be sure you're clear about what you're actuallyexample, let's say you invest $10,000 for ten
paying for when you pay a load.years and get annual returns of nine percent
It is not to get a fund with a superiorbefore expenses. If this money is in a fund with
return-there is no evidence that load fundsan expense ratio of 1.8 percent, your money will
perform any better than no-load funds. Rather,grow to $19,741. If the money is in a fund with
you're paying for assistance in selecting the fund.an expense ratio of just .4 percent, however,
With thousands of no-load funds to choose from,your investment will grow to about $3,000 more,
I personally see no reason to ever pay a load foror $22,744.
a fund, unless you absolutely must rely on aTo compare fees between different funds, read
commission-based advisor.each fund's prospectus. All fund prospectuses are
It's important to understand that all funds carryrequired to present a complete description of
some costs that lower your returns. Look atfees in standardized, easy-to-read tables.
these very carefully because a fund with highAlso, the Securities and Exchange Commission has
costs has to perform better than a low-cost fundan excellent calculator that helps with expense
just to stay even. My quick guide will help youcomparisons on its Web site at www.sec.gov.
understand the range of fund fees.THE BOTTOM LINE: Historically, load funds have
Shareholder expenses are paid for directly byno advantages over no-load funds when it comes
each investor in the fund.to investment performance. However, load
They can include sales charges (for load funds),charges may be a necessary evil when dealing
redemption fees when you sell shares, exchangewith a financial advisor because that advisor
fees for transferring money from one fund todeserves to be paid for his or her time and
another, and annual account maintenance fees.expertise.
Operating expenses are all the costs associated