The answer depends on how you define "operating expenses."
Let's look at a cinematic metaphor to clear up this apparent ambiguity. A mutual fund's cost is similar to the cost of going to your local movie theater. Let's assume that the price of a movie ticket is $8. Snacks like popcorn, soft drinks and candy can easily add another $4 to the total cost of this entertainment, which means that it really costs you $12 to go to the movies.
A similar situation applies when it comes to the total costs for a mutual fund investor. There are four components to a fund's cost structure, two of which are deducted from a mutual fund's performance, which gives us its total return. Operating expenses (investment management, record keeping, custodial services, taxes, legal, accounting and auditing), expressed as the expense ratio, and a marketing/distribution fee (referred to as a 12b-1 fee, if there is one) is charged against the fund, which means that its total return is a net figure.
In addition, a fund incurs transactional costs – brokerage fees for buying and selling portfolio securities and spread differences between the bid and ask prices – which are not included in the expense ratio but certainly seem to qualify as operational expenses. These can be a significant expense item for a fund with a high portfolio turnover. Lastly, if your fund has a sales charge (load), that fee is also not included in its expense ratio.
In view of the above, a mutual fund's expense ratio is much like the price of a movie ticket in our example, while the transactional costs and sales charges are the equivalent to what a moviegoer spends at the refreshment counter. Obviously, neither the movie ticket price nor the expense ratio captures the respective total cost of a trip to the movies or a mutual fund investment.
When considering costs and expenses, a mutual fund's investment quality increases with the absence of sales charges and 12b-1 fees and the presence of low expense and portfolio turnover ratios. It is a matter of record that low-cost funds outperform high-cost funds.
The reader should note that because redemption fees for early withdrawals from a fund are controlled by the investor, not the fund company, they do not figure into this discussion.
To learn more, see Picking The Right Mutual Fund.