Fees Charged by Investment Companies
Investment companies charge investors a wide assortment of fees. Mutual funds that are just coming to market, for example, may set the price for the initial sale of shares slightly higher than the shares' NAV to help defray start-up costs.

Sales Fees:
Frequently, funds charge some sort of sales fee or "load". A front-end load is a sales commission charged to investors when the shares are purchased. A back-end load, or redemption fee,is charged to investors when theysell shares and exit the fund.

Ostensibly, these fees help reduce the frequency of trading in and out of the fund and encourage investors to maintain their positions. Although these are one-time charges, it makes sense to look at them in terms of an investor's time horizon. So, for example, a front load fee of 4.8% on a $10,000 share purchase ($480) translates to a per-year cost of $160 when an investor holds the shares for only three years ($480/3). If the investor holds the shares for 10 years, however, his cost per year is only $48. To make fee comparisons easy, services such as Morningstar calculate the cost of buying and holding $10,000 of a fund's shares over three-, five- and 10-year time horizons. Sales commissions provide an incentive to the sales force but they can seriously impact investors' total return.

Funds also charge annual fees to cover operating expenses, management and distribution costs.

  • Management fees are fixed fees that a mutual fund manager charges investors for her services and work with the fund. They are usually categorized as administrative fees or management fees.
  • 12B-1 fees allow a mutual fund to collect a small fee from investors. This fee is designated for promotions, sales, or any other activity connected with the distribution of the fund's shares. The fee must be reasonable: 0.5% to 1% of the fund's net assets and up to a maximum of 8.5% of the offering price per share.


In choosing between two funds with similar features and performance, the fund with the lowest total fees will always be more appealing to investors. One way to compare fees is to look at the fund's expense ratio. This is presented in the annual report as well as in the prospectus. Average fees vary according to asset class: bond funds typically have a lower expense ratio than U.S. stock funds which, in turn, generally charge less than international stock funds.

Investment Strategies

Related Articles
  1. Investing

    Trading Mutual Funds For Beginners

    Learn about the basics of trading and investing in mutual funds. Understand how the fees charged by mutual funds can impact the performance of an investment.
  2. Investing

    Are Fees Depleting Your Retirement Savings?  

    Each retirement account will have a fee associated with it. The key is to lower these fees as much as possible to maximize your return.
  3. Investing

    A Guide To Investor Fees

    Fees are one of the most important determinants of investment performance and something that every investor should know.
  4. Investing

    Investors: Your Fees Are Probably Too High

    The lower your fees, the higher your returns. Here's how to find out if you're paying too much for your investments.
  5. Investing

    Why Are ETF Fees Lower Than Mutual Funds?

    Discover all the reasons ETFs typically have lower fees than mutual funds, including their passive management and the absence of load and 12b-1 fees.
  6. Investing

    3 Investment Fees That Are Negotiable

    Investment fees are a necessary evil but that doesn't mean they have to be overly costly. There are ways to negotiate some of the expenses down.
  7. Investing

    Consider These Fees When Evaluating Mutual Funds

    The best way to evaluate a mutual fund is by digging a bit deeper into the fees charged.
  8. Investing

    ETFs vs. Mutual Funds: The Lowdown on Costs

    Confused about the full range of fees on ETF and mutual funds? Here's a quick guide on fees and expenses.
  9. Investing

    Looking to Buy Mutual Funds Online? Here Is How

    Learn how to buy mutual funds online; discover which websites offer mutual fund trading services, how to choose a fund and typical fees.
Frequently Asked Questions
  1. What's considered to be a good debt-to-income (DTI) ratio?

    Your debt-to-income ratio helps lenders determine your credit worthiness. Find out how to calculate your score and how to ...
  2. What is the difference between a loan and a line of credit?

    Learn to differentiate between lines of credit and standard loans, and determine when you are likely to use each method of ...
  3. What does a Chief Financial Officer (CFO) do?

    A CFO is responsible for accurate reporting of a company's financial information, investing the company's money and identifying ...
  4. How did George Soros break the Bank of England?

    George Soros pocketed $1 billion by betting against the British pound, cementing his reputation as the premier currency speculator ...
Trading Center