| Sometimes investors think of mutual funds as | | | | Taxes are not a reason to not buy a mutual |
| a straight choice between no-load funds or | | | | fund, after all, taxes are just a fact of |
| load funds, because that is what they read | | | | life. For funds within a retirement account |
| about in the financial or popular press. But, | | | | taxes are deferred until they are sold at |
| there are a host of mutual fund expenses that | | | | retirement. |
| can be charged to a no-load mutual fund as | | | | |
| well as a load mutual fund. | | | | Index funds are known for their extremely low |
| | | | yearly management fees, because they are not |
| About 99% of mutual funds charged fees. So | | | | actively managed. Some average .20%, which is |
| the trick is to find a mutual fund that has | | | | extremely low, almost insignificant. All |
| low yearly fees so that they don't | | | | mutual funds are charged yearly management |
| significantly reduce the money you make on | | | | fees. These fees are the vehicles, which |
| your fund. Mutual funds have a variety of | | | | enable the fund to pay its costs. Choose |
| costs. These costs include yearly management | | | | funds with low yearly management fees. These |
| fees, administrative charges, taxes and | | | | will be charged for the life of the fund you |
| loads. | | | | choose; therefore it is prudent to focus on |
| | | | funds with low yearly fees. Examples of low |
| Many investors are now familiar with loads | | | | fees are charges of 1.25% or less. Of course, |
| because we frequently hear the terms, load or | | | | you may be less concerned with management |
| no-load in the media. The other costs are | | | | fees if the fund performs well. You can |
| usually not discussed by the media but these | | | | expect a typical growth mutual fund to return |
| can have a dramatic effect on how much | | | | 12% or more with compounded interest. Don't |
| benefit you get from the fund in real terms. | | | | forget, compounded interest happens over a |
| Some mutual funds charge an upfront or | | | | period of years. Compounded Interest is the |
| back-end load, while others have no-load. | | | | way interest is paid on mutual funds. This |
| Know what load your fund charges. Many are as | | | | means interest is paid on previous principal |
| low as zero, while others are as high as | | | | and interest, not just the principal. |
| 8.5%. | | | | Therefore you get interest paid on interest, |
| | | | over and over again. Compounded interest |
| Loads can be used to pay your broker's fee, | | | | gives you a distinct advantage over simple |
| and other administrative costs. Some, but not | | | | interest savings account. However, in |
| all mutual funds have 12b-1 or b fees. These | | | | comparison, a 3% bank savings account could |
| fees are used to pay for advertising and | | | | lose 2% to inflation and another 1% to taxes, |
| other administrative costs. A fund with a | | | | with only simple interest returns, your true |
| 12b-1 fee of .25% or less is still considered | | | | interest rate could be zero. |
| a no-load fund. | | | | |
| | | | Mutual funds are liquid accounts, funds can |
| Some mutual funds have what is called a low | | | | be withdrawn at any time, without penalty in |
| turnover rate. When mutual fund managers buy | | | | most accounts, (exceptions are accounts with |
| and sell a high number of stocks, with | | | | back-end loads and retirement accounts). Know |
| frequency, within a fund, it will have a high | | | | if your mutual fund pay- out date is |
| turnover rate, causing a higher capital gains | | | | quarterly, every six months (bi-annual), or |
| tax, the opposite is true with low turnover | | | | yearly. If you take money out of your mutual |
| mutual funds. Check the fund reports for the | | | | fund pay-out date, you will loose your |
| turnover rate. A rate of 80 or less is | | | | interest payment, on that money, for that |
| usually considered low. | | | | year if it is yearly, and so forth. |
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