The Truth About Mutual Fund Fees

Many people will tell you that the easiest route to investing is through mutual funds. Why not? Mutual funds provide you with varying investment tools that can become an advantage in terms of gains and losses. Mutual funds are varied because its portfolio typically consists of stocks, bonds and other securities.

Nothing Is Free

But if you think all you have to do is pay for the mutual fund actual capital cost, then you are dead wrong! $50 billion dollars of mutual fund fees is collected from investors annually. If truth be told, mutual fund fees are very high and it can dramatically cut down on your investment returns in due course of time.

These mutual fund fees are designed to be subtracted from your return immediately, in this way you will see no invoice or any trace as to why or how much has been deducted. A lot of mutual funds fees cheat investors who are not very knowledgeable in investing techniques.

Mutual fund marketers will focus on highlighting past performances in order to entice you to buy their mutual funds. Previous accomplishments will not tell you whether a mutual fund will do well in this fiscal year or not, all it does is give you a gauge of the fund's volatility.

Keep Alert

Do not get hoodwinked! There is a way of curbing your mutual fund fees. Mutual fund fees are cited in the prospectus and on the internet or mutual fund company websites. So don't be lazy; read up and educate yourself.

Funds that have high cost ratios and 12-b fees must be avoided at all times. Never ever buy a loaded fund. Loaded funds are those that carry deferred loads, back and front end loads. Fund managers disguise sales charges as loads in order to dupe the general public.

Sales loads are the commissions that the mutual funds pay brokers. You don't gain anything from buying loaded mutual funds. Front end loads are mutual fund fees that are paid forthright. You shell out mutual fund fees when your mutual fund expires or when you sell the fund when it has deferred or back end loads. The last load is called constant load fund, where sales fees are paid annually, and when you sell you give the payment in full.

What Are 12b Fees?

12b fees were mandated by the SEC to help investors by promoting mutual fund assets to create an influx of fund assets. Sorry to say, however, that fund managers actually use the 12b fees to pay the brokers to use the fund.

The best advice any professional will give you is to purchase no load funds. Or better yet if you have enough knowledge, circumvent the system and buy stocks yourself.