While mutual funds have become one of the most popular and accessible forms of investing, they do come with a few strings attached. It doesn’t matter what sort of investing you are trying, stocks, bonds, securities and even mutual funds come with fees. But how can you tell what kind of fund has what kind of fee and what are the different kinds of fees out there?
A common fee connected to mutual funds that are bought through a broker or a third party is a sales charge. One of the major advantages of buying your mutual funds directly through the company that sells them is that you can usually avoid the sales charge fee.
One of the most important lessons you can learn about mutual fund investing is to always look for no-load mutual funds. A no-load fund has no fees attached. But what if you see a load fund that you really want to try? Load funds are broken down into thee classes: A, B and C. Each letter carries a different set of fee rules. For A load funds, you can expect to have a 4-6% chunk of your investment taken once you buy the fund. There is an additional annual fee of about .25% that is also taken out. For B funds, there is no fee taken out at the beginning, but there is a fee once you want to take your money out of the mutual funds. This fee does go away after six years of having the fund, but you will get dinged if you try to take your money out any sooner. For C funds, they are free of both the beginning and ending fee, but they do have an annual fee that can fluctuate depending on the fund contract you signed.
All mutual funds, regardless if they are load or no load, do come with a management fee. This is like a commission that is paid to the folks that manage your fund and help it make money. This fee is usually fairly small and almost never crosses 1 percent. While it always stinks to have to pay fees, at least with this one you’re rewarding the people that are helping you make money.
While fees are a fact of life when dealing with mutual funds, the best thing you can do as an investor is to stay away from load funds at all costs. Keep your money working for you and not in the pocket of a broker.