A mutual fund is an investment that pools a group of investors' money and invests in a wide variety of securities, such as bonds, stocks and money-market accounts. Mutual fund companies charge fees to cover the cost of running the fund, which can be a large factor when deciding whether to invest in a certain mutual fund. The U.S. Securities and Exchange Commission requires mutual fund companies to disclose the fees (typically a percentage of your investment) near the front the brochure.
Step 1
Locate the mutual fund brochure, also known as the prospectus. When you first invest in a mutual fund, the SEC requires the mutual fund company to provide you with one. If you've lost the prospectus, ask your broker for another copy or download one from the mutual fund company's website.
Step 2
Look at the "Fees and Expenses" section on the prospectus, which is typically located on the first or second page, generally after the Investment Objectives section. This section includes the shareholder fees, which are paid directly from your investment, and annual fund operating fees, which you have to pay each year. Fees are listed by classes, which determine whether you're charged a front-end sales charge or asset-based sales charge.
Step 3
Multiply the total fee percentage by the amount you invested in the fund to determine your mutual fund fees. For example, if you invested $50,000, the shareholder fees are 5.75 percent and the total annual fund operating expenses is 1.17 percent, multiply $50,000 by 6.92 percent. Your mutual fund fees are $3,460 per year. $2,875 will be deducted from your investment each year to cover the shareholder fees, and you must pay $585 for the annual fund operating expenses.
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Tips
- As of 2013, the SEC doesn't impose a limit on the size of fees a mutual fund company can charge, but limits redemption fees to 2 percent in some cases.
- Mutual fund fees can vary, depending on the fund.
- Most mutual fund companies offer a discount on front-end sales charges when you invest large amounts of money, also known as a breakpoint. Sales charges are included in the Shareholder Fees.
- Mutual fund companies quote fees on an annual basis.
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Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.