Calculate Mutual Fund Expenses
Mutual fund fees and expenses refer to those charges investors of mutual funds incur associated with the fund’s advisory fees, marketing fees and transaction and distributions costs. These costs are passed from the mutual fund company to its investors and have a negative impact on overall investment performance. The higher a fund’s costs, the greater the return the fund must achieve to beat market indexes and benchmarks.
Mutual Fund Expense Ratio
A mutual fund expense ratio (MER) is a measure of the cost associated with running a mutual fund. Specifically, it is the percentage investors pay in fees to the mutual fund company for the operation and management of the fund (excluding sales charges). The expense ratio can vary greatly among mutual funds with the fee investors pay for the management and advisory of the fund serving as the largest component. Among actively-managed funds, the average expense ratio is about 1.25%.
The other costs associated with mutual fund investing are the loads and redemption fees.
Types of Mutual Fund Expenses
While every fund passes its operating expenses on to its investors, some funds also levy “shareholder fees” directly on the investors whenever they buy or sell shares of the fund.
Loads: A sales load is the percentage a fund charges for the purchase or sale of shares. Depending on the fund, these charges might be incurred at time of purchase (front-end), when shares are sold (back-end). No-load funds are mutual funds that do not charge any type of sales load.
Transaction Fees: The transaction fees associated with a mutual fund include purchase and redemption fees to defray the costs associated with investors buying and selling shares. Unlike loads, which are paid to brokers, these fees are paid directly to the fund.
Management Fees: Management fees are paid to the fund’s advisor for providing professional portfolio management. Management fees may also include other administrative types of services associated with running the fund.
12B-1 Fees: 12b-1 fees are assessed for the sales and marketing expenses of the fund. 12B-1 fees cannot exceed 0.75% of the average net assets of the fund for a given year or 0.25% for no-load funds.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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