Mutual fund fees
Mutual fund fees, including sales charges,
management fees, redemption charges, and marketing — or
12b-1
— fees are an important consideration for most investors. That's
because the fees you incur when you own shares in a fund have an impact
on what you actually earn in the fund. For instance, if your mutual fund has a 9%
total return
one year, and your total annual fees in that fund average 2.5%, your
actual rate of return on your investment before taxes and inflation is 6.5%.
Because every fund's fee scale and structure is different, it can be difficult
to compare the costs of owning shares in one fund to another. And the practice
within some funds of bundling, or combining, fees, means that sometimes
investors don't know precisely what they're paying for. For example, some
expenses, such as commissions, transaction costs, and fund manager
compensation, may be included in the cost of shares, while others may
be completely undisclosed.
For these reasons, the
SEC,
FINRA,
and the mutual fund industry are investigating ways to provide better and more standardized disclosure of mutual fund fees and expenses. Many experts argue that clearer disclosure of fund fees would not only help investors make better informed decisions, but would improve price competitiveness within the industry.
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