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What Exactly Mutual Fund Cost Basis Is? Where To Get Detail Info?

What exactly are mutual fund management fees and how do they affect the eventual outcome of investing in mutual funds? Answering those two questions correctly will undeniably be critical to the financial success or failure of said investment over the long term.

Whether it is disclosed that fees and expenses are imposed directly on the shareholder or not, shareholders should first keep in mind that they will ultimately pay for all of the costs associated with managing a mutual fund, either directly or indirectly. The exact terminology may vary between different mutual funds, but the bottom line remains the same.

Types of Mutual Fund Management Fees

  • Sales loads or charges: No load funds do not charge to purchase their shares initially, but will tend to charge on the “back end”, meaning fees will be assessed when shares are redeemed, still giving shareholders an advantage since all funds deposited are invested for the benefit of shareholders.
    Furthermore, funds generally calculate these fees, sometimes called deferred sales loads, as the lesser of the shareholder’s initial investment or the value of the investor’s investment at the time of redemption, reducing the total fee if the initial investment has appreciated in value, which is the purpose of the investment anyway. These two factors alone render no load funds more valuable to shareholders than their load brethren, although load funds can sometimes outperform no load funds, therefore total return should be the final consideration.
  • Exchange fees: This fee may apply if shareholders wish to transfer to a different fund within the same group of funds.
  • Account maintenance fees: Typically charged when the account balance falls below a certain threshold.
  • Purchase fees:  Identical to sales loads, the only difference being that loads are paid to selling brokers, whereas fees are paid directly to the funds, an arrangement where the funds sell directly to the public.
  • Management fees: These are paid to the managers of fund assets, and may include administrative fees not included in “Other Expenses”.
  • Distribution and Service fees: Known as 12b-1 fees from the SEC law section that allows such distribution, these include a plethora of fees and expenses, including marketing costs.
  • Other expenses: Another smorgasbord of fees and expenses that cover such items as custodial or transfer expenses.

It probably would be preferable to fully analyze all of these expenses, but thankfully, there is a final line called Total Annual Fund Operating Expenses, expressed as a percentage to the fund’s average net assets.

Where to get detailed information of these mutual fund management fees?

They are located in a fee table under “Shareholder Fees” in the required prospectus.

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