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