Everyone likes to talk about a fund's performance. But a facet of a mutual fund worthy of equal consideration that often gets the short shrift is its expenses. A fund's expenses, which cover several fees and costs, are a significant determinant in overall performance. Typically, expenses can be as low as a fraction of a percentage point for index funds or exchange-traded funds or as high as 8% or 9% for funds that carry a sales charge, or load, because they are sold through a broker or financial planner who gets a sales commission. Do more expensive funds deliver better performance? There's no evidence to support that, so investors won't necessarily get burned for bargain hunting for funds (just don't gloss over a fund's performance record and manager). There are a number of fees and expenses that a fund may offer, and they are always listed in the prospectus, so investors should check them out. Here's a quick list of some of the charges you might find:
Management Fees: This is what you pay for the management to run the fund. Typically, these fees run from a fraction of 1% to more than 2%. 12b-1 Fees: These fees, also known as distribution fees, pay a fund's marketing bills. Not all funds charge them, so this is a spot where investors can cut costs. Redemption Fees: It often costs funds time, effort and money when investors buy and sell the offering. To discourage this, many funds levy redemption fees on investors who sell out of a fund within a certain period.