Mutual Fund Fees: A Guide for Beginners

Mutual fund fees generally fall into two big buckets: Annual fund operating expenses and shareholder fees.
Kevin VoigtMay 24, 2021

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How do you select your mutual funds from among the thousands on the market? Three key words: Follow the fees.

Besides to help build the best portfolio for you, a little understanding of mutual fund fees can go a long way toward building your retirement savings. As the Securities and Exchange Commission warns: “Even small differences in fees from one fund to another can add up to substantial differences in your investment returns over time.”

» Ready to get started? Here’s our list of the

Mutual fund fees generally fall into two big buckets:

The details on these can be found in a mutual fund’s prospectus, a legal document that each mutual fund is required to file with the SEC. Find the document on the fund’s site and then search for the terms “annual fund operating expenses” and “shareholder fees.”

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Ongoing fund operating fees are unavoidable — you’ll have to pay something to keep the lights on at the fund’s management offices — but different kinds of funds require different overhead costs. These fees, also known as mutual fund expense ratios or advisory fees, typically are between 0.25% and 1.5% of your investment in the fund per year.

Generally speaking, if the fund is actively managed to try to beat average stock market returns, these costs are higher than for passively managed funds such as index funds, which aim only to mirror the returns of a benchmark stock index such as the S&P 500.

To find these costs, look on the prospectus for the fund’s “total annual operating expenses.” Listed ongoing costs may include:

The total annual fund operating expenses are expressed as a percentage of the fund's net average assets.

» How do fees impact returns?  This

These expenses may include:

» Dive deeper:

As the name implies, load funds impose "sales loads," or commissions that you pay to third-party brokers when you buy and sell shares. The commissions are calculated as a percentage of the amount you’ve invested in the fund. A fee paid at the time of purchase is called a “front-end load,” while a fee paid at the time of sale is (you guessed it) a “back-end load.”

Funds that don't set sales loads are called no-load funds.

Brokers may also charge transaction fees for buying or selling mutual funds. Transaction costs are typically charged as a flat fee that can range from $10 to $75. As more investors look for low-cost ways to grow their investment portfolios and reduce costs, more brokers are offering no-load and no-transaction-fee mutual funds. For example,  and each offer more than 4,000 no-transaction-fee funds.

Important note: Even if the mutual fund doesn’t set sales loads, it still may charge redemption, exchange, account and purchase fees.

Sales loads are assessed depending on what “class” of shares you buy:

As the SEC suggests, if you're purchasing a mutual fund through a financial professional, ask that person to explain all the charges that may apply, including his or her own fees. And remember: A fund with high costs must perform better than a low-cost fund to generate the same returns for you.

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