Are you paying too much for mutual funds? Many people don’t know if they are paying too much for mutual funds because they don’t know what they’re paying to begin with. We can help!
Before you buy a mutual fund make sure you know what fees are associated with it. This article will explain how mutual funds operate and how to find out what mutual fund fees you are being charged. It’s important to understand these fees because they can lead to major drains on your investment in the long run.
Most Common Mutual Fund Fees include:
Shareholder Fees
- Front-end Load (Sales Charge): This is a one-time fee that you pay to buy a mutual fund. The fee ranges from 0% – 8.5%, and the money is used to pay broker or advisors.
- Back-end Load (Deferred Sales Charge): Just like the front end load but the fee only applies when you sell a mutual fund.
Annual Operation Fees
- Management Expenses: This is a annual fee that pays for money managers to manage the mutual fund. There is no set limit to how much they can charge – so beware of management expenses that are high!
- 12b-1 Fees: This fee pays for marketing/advertising for the fund to attract new investors. It can range from 0-1%.
- Other expenses: This covers all other mutual fund fees.
How Can I Find My Mutual Fund Fees?
The easiest way to find out your mutual fund fees is to look at your funds prospectus. The fund prospectus is legally required by the SEC for all mutual funds, and contains all the information on the mutual fund. You can find your mutual funds prospectus in a few ways:
- Go to MorningStar.com. In the quote search box on top, type in your funds name or symbol (usually 5 letters represent your mutual fund). On the bottom right side under the filings section, there is an option to see the prospectus. Or just go to the expense tab and you can see the fees associated with your particular mutual fund.
- Another easy way to find the prospectus is to Google your mutual funds name and add prospectus to it. For example, if I wanted to find the mutual fund fees associated with Pioneer Fund – Class A (PIODX), I could just type in PIODX prospectus in the Google search engine and a list of different places would pop up that have the PIODX prospectus available.
- Or go straight to the investment company’s website and in the search box type in your mutual funds name or symbol. This should bring up an overview of the fund and there should also be a place to click and get the prospectus.
So now lets see if you are paying too much for mutual funds – In the example below Lets check out what mutual fund fees are being charged.
Here is a portion from MorningStar.com under the expense tab of the Pioneer Fund – Class A (PIODX) that shows the mutual fund fees.
In this scenario the mutual fund fees are as follows-
- Front-end Load (sales charge): 5.75%. This means if you invest $10,000, $575 is taken out right away for a sales charge.
- Management Fees: 0.49%. This is an annual fee paid every year on the balance of your mutual fund.
- Distribution 12b-1 Fees: .25%, this is also an annual fee
- Other Expenses: .22%
Adding up all the annual fees will give you the total Annual Fund Operating Expense (.96%). Don’t forget – you’re the one paying these mutual fund fees and they directly affect your return.
So besides trying to match a market benchmark, your money manager will need to exceed the benchmark just to cover the annual fund operating expenses! The total annual fees are even more expensive with other funds.
Are You Paying Too Much For Mutual Funds?
Now do you see how mutual fund fees affect your return?
If these mutual fund fees sound high, it’s because they are! That’s why its important to take the next step and learn about Index Funds – an investment instrument similar to a mutual fund that can have total annual fees as low as .09%.
