| If you think mutual fund performance is the | | | | return numbers. |
| whole story, watch out! You could make a very | | | | |
| expensive mistake by not considering the | | | | Management Fee -- This fee gets paid to the |
| costs of a mutual fund! The lower a fund's | | | | team that makes all the investment decisions. |
| costs, the higher percentage of your fund's | | | | Out of this fee, the fund management pays for |
| real return you receive. You can control what | | | | trading costs so you won't see commissions |
| you pay to invest by selecting low cost | | | | detailed in the expense section of the |
| mutual funds. | | | | prospectus. |
| | | | |
| Mutual fund costs come in two flavors: | | | | 12b-1 Distribution Fee -- This fee covers the |
| | | | costs of advertising and selling the fund. |
| 1) Shareholder Fees | | | | These fees are "ongoing", meaning they never |
| | | | go away for as long as you own the fund. They |
| You pay these fees directly out of your own | | | | can have a significant negative impact on the |
| pocket to purchase, redeem, or exchange | | | | cost of a fund. |
| shares. The following shareholder fees will | | | | |
| appear in the "Fee and Expenses" section of a | | | | Other Expenses -- This includes the cost of |
| mutual fund's prospectus: | | | | daily administration of the fund such as |
| | | | issuing annual reports, maintaining office |
| Sales Charge on Purchases -- Also called a | | | | space, etc. |
| "Load", this fee is expressed as a percentage | | | | |
| of the dollars invested | | | | How much you should expect to pay depends |
| | | | upon the mutual fund category. Each category |
| Purchase Fee -- Usually replaces the sales | | | | has it's own average annual expense ratio. |
| charge / load. This fee appears as a flat | | | | For instance , it costs more to run an |
| dollar charge for making a purchase | | | | international fund than a domestic. Bond |
| regardless of the investment amount | | | | funds cost less to run than equity funds. To |
| | | | find out the category's average expense |
| Sales Charge on Reinvested Dividends -- | | | | ratio, go to Morningstar and view the report |
| Similar to the "Load" on purchases, this fee | | | | for the fund you're considering purchasing |
| is expressed as a percentage of dollars | | | | (simply input the fund's symbol in the |
| reinvested | | | | "Quote" box and hit "enter") once the report |
| | | | appears, go to the "Fees and Expenses". The |
| Redemption Fee -- Charged at the time of | | | | category average expense ratio appears in the |
| selling shares of the fund. Expressed as a | | | | "Actual Fees" section on the right. |
| percentage of the dollars invested or a flat | | | | |
| dollar amount | | | | All things being equal (i.e., risk, |
| | | | performance, etc.), you want to select mutual |
| Account Maintenance Fee -- A flat dollar | | | | funds that have low expense ratios relative |
| amount charged if your account value falls | | | | to other funds in the same category. You can |
| under a specified minimum balance | | | | compare the cost of various funds for free by |
| | | | using Vanguard's Cost Comparison tool or the |
| 2) Annual Operating Expenses | | | | Morningstar Fund Compare. If you have a |
| | | | membership at Morningstar, check out the Cost |
| These expenses get deducted from the Fund's | | | | Analyzer found in the Morningstar Tools |
| assets before the management firm calculates | | | | section (right side of the page). |