With Funds, What You Don't Know Can Cost You

Some people will surf the Internet for hours to save $25 on a DVD player. But many investors bizarrely throw away hundreds if not thousands of dollars every year when investing in mutual funds.

Figuring out what you're paying to invest might seem intimidating, but it's really not that complicated. First, you start with the fees you'll pay to buy a fund in the first place and then work your way down.

Here's a quick list of ways to trim the fat:

Going It Alone

If you buy a mutual fund from a broker, you're going to pay more for the privilege. It's just that simple. But it's how much more that'll shock you.

An upfront sales charge of 5.75% might not sound like a lot. But if you're investing say $40,000, you're paying $2,300 for that one purchase. Yes, there are other types of loads that come on broker-sold funds -- back-end loads that hit you when you sell or level loads that keep on taking.

The point being: To cut costs dramatically, you can go it alone and save yourself a lot of money.

But if you have to use a broker, you must understand exactly what you're being charged for that advice and inspect those numbers yourself. When someone is trying to sell you a fund, you'll want to see more than a two-page document -- a so-called "tear sheet" -- which vaguely explains what the portfolio invests in.

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You should always ask to see a prospectus (you're supposed to get one when you buy a fund, but that's another matter).

Yes, a fund's prospectus can be filled with mind-numbing legalese. But it also lays out exactly how the sales charges and fees work. To put the costs of a fund in real-world dollars, go right to the fee table. Every prospectus has to include the costs of owning a fund over several time periods, based on a hypothetical $10,000 investment and a 5% annual return.

If you're trying to compare one fund to another, this is the place you want to come. Just look at the (PNOPX)Putnam New Opportunities fund, which comes with a sales charge, up against the no-load (MFOCX)Marsico Focus fund. Over five years, the Putnam fund -- assuming you bought the A shares -- would cost you $1,086. The Marsico fund? Only $713.

That savings is a brand-new TV.