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Guide to Mutual Fund Fees

Interested in learning what a Sales Load is on a mutual fund? What about 12b-1 fee? Well, all of them are outlined in this SEC document on mutual fund fees [3]. What? You don’t really want to read that huge thing and you would prefer that I just give you a quick one or two sentence synopsis of each fee? Well it’s your lucky day because I’ve done just that. Ultimately, it’s a pretty straightforward list. It’s broken up into two types of fees, shareholder fees and fund fees. Shareholder fees are those fees that you pay out, fund fees are those fees or expenses that the fund pays out to stay in operation.

First things first, the list below is just a general description of what each fee is and what it generally covers in terms of the mutual fund operation. For the actual fees related to your mutual fund, you will want to get a copy of your prospectus and look for a fee table for the actual amounts you’re paying.

Shareholder Fees

These are all fees that the investor will see deducted from their accounts to go to the fund itself.

Annual Fund Operating Expenses

These are fees that the fund pays out to its management and these are also governed by the SEC rules. You’ll often see these values expressed in total as an expense ratio.

Why Index Funds Rock

See all those fees? Check out the Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) [4] and tell me what it says next to the 12b-1 Fee, Account Service Fee, Purchase Fee, and Redemption Fee? Right, it says none with the exception of a $20/year account service fee for balances under $10,000. If you crack open the Prospectus, on page 9 you’ll see that there are no sales loads whatsoever. Management expenses clock in at 0.16% and other expenses at 0.03%, the total expense ratio is a mere 0.19%. Index funds kick butt!