Mutual fund companies are permitted by the Securities and Exchange Commission (SEC) to deduct fees from fund earnings. Fund companies typically do not highlight fees in magazine and website advertisements, but the SEC does require fee disclosure near the front of the mutual fund prospectus. The fees are quoted as a percentage of the total fund operating expenses and include operating expenses like salaries for the fund managers, transaction costs when securities are bought and sold within the fund, administrative costs for accounting and legal fees, and marketing expenses of promoting the fund.
Locate the fund prospectus. The SEC requires that you receive a prospectus (either online or in paper format) when initially investing in a mutual fund. If you have discarded the prospectus, you can request another through your brokerage or retirement account custodian. The prospectus can also be found on the respective mutual fund company website or requested by phone. For example, Fidelity, American Funds, and Schwab provide links to fund prospectuses directly from their websites.
Locate the fee section of the prospectus near the first page, after the fund objective. The fee section of the prospectus details all levels of fees. Total fees are influenced by size and expertise of the management staff, number of transactions, class of funds, and whether marketing fees (12b-1 fees) are paid to brokers who promote the funds.
Multiply the total fee percentage by the total amount invested in the fund. For example, if the fee percentage is 1.25 percent, and your investment is $1,000, then the fee total will be $12.50 per year. Fees are quoted on an annual basis.
The Financial Industry Regulatory Authority (FINRA) provides a calculator called the Mutual Fund Analyzer (see Resources) for analyzing the dollar impact of expenses and comparing expenses across funds.
Consider the impact of mutual fund fees on fund performance. Several low-fee options now exist as alternatives to traditional higher-fee funds.
- The Financial Industry Regulatory Authority (FINRA) provides a calculator called the Mutual Fund Analyzer (see Resources) for analyzing the dollar impact of expenses and comparing expenses across funds.
- Consider the impact of mutual fund fees on fund performance. Several low-fee options now exist as alternatives to traditional higher-fee funds.
Spencer Jones began writing financial presentations for the Tennessee Valley Authority in 2004. He is a practicing certified financial planner and has served as a public pension plan director and family investment manager. Jones is also an instructor of finance at Carson-Newman College, where he received a Bachelor of Science in accounting. He also holds an Master of Business Administration in management.