Virtually all fund fees fall into two categories: load and expense ratio. A load is a one-time sales charge. Front-end loads are levied when you deposit money into a mutual fund, and back-end loads, also called redemption fees, are exacted when you withdraw money. A typical load is around 3.00%. As an example, consider the Seligman Communications and Information Fund -- Class A. (Classes B and D have different fee structures.) This fund has a 4.75% front-end load. So if you plunk $10,000 into it, $475 will be deducted from your money up front.
Loads exist to support aggressive sales efforts that bring more money into the fund and into the fund company coffers. This isn't usually in your best interest as an investor, so Fools tend to favor no-load funds. These often fare better than load funds and have lower expense ratios, to boot.
With no-load funds, you just need to focus on the expense ratio. Chairs, computers, catered holiday parties, and other administrative costs that support the fund are included in this annual fee. Two of its components are often reported separately: 12b-1 and management fees. The 12b-1 fee is defined as covering marketing expenses, but it's essentially a continual load in the form of an annual sales charge. Management fees pay for fund manager salaries. The median total expense ratio for funds is around 1.00% and tops 1.5% for stock mutual funds. The Seligman fund comes in at 1.59%. Included in the 1.59% is a 0.25% 12b-1 fee and a 0.90% management fee (up from 0.86% several years ago).
Index funds, which the Fool recommends for investors who want to invest in mutual funds, typically sport very low fees and outperform most other funds. The Vanguard Total Stock Market Index
Learn more about investing in mutual funds in our Mutual Fund area, and zero in on our index fund information there.
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