Mutual funds are a type of financial security that allows people to invest in multiple securities. These consist of a grouping of several securites including a combination of stocks and bonds. These funds are part of the investment portfolio of many people due to the diversity that they offer. However like most financial transactions that are managed, there are fees and expenses that are required in order to have these funds.

Mutual fund fees and expenses are small financial liabilities or charges that are often incurred by those who posses mutual funds. When having a mutual fund the investor needs to pay costs such as shareholder transaction fees, advisory fees, marketing fees and distrubution expenses.

Although these funds have expense and costs, the funds usually pay and cover all of these fees so the investor or fund holder pays these expenses passively. Learning the details of the fees and expense are an important part of picking the best mutual fund for your investment goals. Below is a detailed explanation of mutual fund fees.

1. Transaction Fees.

One of the main types of mutual fund fees and costs are the transaction fees. These are known as the purchase fee, redemption fee and the exchange fee. The purchase fee is a fee that is charged to shareholders when they buy shares of stock in a company. A purchase fee is paid to the fund and is used to offset the funds costs.

A redemption fee is also charged to the shareholder and is paid to the fund itself to offset costs associated with the shareholder’s redemption. Exchange fees are costs that are imposed on shareholders when they exchange to other funds in the same group of family of funds.

2. Periodic Fees.

Periodic fees are another form of fees and costs of mutual funds. Managment fees are fees paid out of fund assets to the funds investment advisor and for the overall managment of the fund itself. The fees such as administrative fees are known as maintenance fees. The account fees are fees that are typically used for maintenance. An example would be an imposed fee on an account that is lower than a specific dollar amount.

3. Transaction Costs.

Transaction costs are another main cost of mutual funds. These fees and costs are incurred when an investor trades the funds assets. Funds with a high turn over ratio or ones that are in illiquid markets incur higher costs than regular fund trades.

4. Mutual Fund Loads.

The next type of mutual fund expenses are the loads. The loads are fees that are charged as a percentage of the dollar amount of either the purchase or sale of mutual funds. Front end loads are present in class A mutual funds. These are a type of sales charge which are paid when a group of shares are purchased. Back end loads are fees that are incurred with class B mutual funds. These are deferred sales charges which are fees that are charged when shares are sold. This fee usually goes to the brokers who sell the funds for the investors.

The level load or low load funds are like the back end but only no sales charges are paid when the fund is bought. Charges are only incurred when funds are purchased or sold within a given time frame. No load funds are associated with class C shares. These funds do not charge a sales load. However they may charge a fee such as a purchase fee, redemption fee, exchange fee or an account fee.

This is a fairly quick introduction to mutual fund expenses and fees and should be a starting point if you’re researching the different types of costs that are associated with the fund you’re considering.

Keep learning more:

1. Best Mutual Funds: How to Pick the Best Mutual Fund


2. What is a Mutual Fund?


3. The 3 Basic Types of Mutual Funds


4. The 3 Different Types of Bonds


5. The Advantages of Investing in Mutual Funds


6. Do Mutual Funds Outperform the Market?


7. Mutual Funds Allow Instant Diversification

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