3. Mutual Fund Expenses - note that NASD rules prohibit members from applying sales charges in excess of 8.5% of the public offering price on mutual fund purchases.



Formulas
  1. Sales Charge ($ amount)=Public Offering Price (POP, that which investors pay)-Net Asset Value (NAV)
  2. Sales Charge (%)=Dollar amount of sales charge/POP
  3. POP=NAV/100%-sales charge percentage

        1. Front-end Load - the sales charge which is deducted from the initial investment (A shares).
        2. Back-end Load (contingent deferred load) - the sales charge that is imposed upon withdrawal from the fund, assessed usually upon the lesser of the fund's redemption value or initial investment value. Many funds have back-end loads which decline over time (B shares).
        3. 12b-1 Plan - an additional fee of up to 1% on the fund's net asset value. It pays for advertising and marketing expenses.
        4. Administrative Expenses - these pay for the fund's operating expenses the fund's portfolio manager and employees. Depending upon whether the fund is actively or passively managed and its objective, the expense could be as low as five basis points or as high as three hundred. In practice, most actively managed funds range from one to two percent of assets under management.
        5. Mutual Fund Share Classes:
          1. Class A-contain a front-end load and a 12b-1 fee. There is no redemption fee.
          2. Class B-contain a redemption fee (back-end load, often declining) and the maximum 1% 12b-1 fee which is higher than that charged on a Class A fund. Once the deferred charge expires, conversion to Class A is allowed.
          3. Class C-a deferred sales charge will often be levied if the fund's shares are redeemed within one year of purchase. The fund also charges the maximum 12b-1 fee and does not allow share conversion to another class.
        6. Mutual Fund Distributions and Taxation-dividends and realized capital gains are taxable to the fund's shareholders even if they do not receive any income from the fund.
          1. Dividends-payable from the fund's net investment income (gross investment income-dividend and interest income-operating expenses; excludes advertising and sales expenses). Qualified dividends are taxable at a maximum rate of 15%.
          2. Capital Gains-appreciation of the value of the portfolio's securities.
            1. Long-term: securities must be held for more than a year. Gains are taxable at a maximum rate of 15%
            2. Short-term: securities are held less than a year. Gains are taxable as ordinary income.
Mutual Fund Advantages/Disadvantages and Evaluation

Related Articles
  1. Investing

    Selling Mutual Funds: What Happens When You Liquidate?

    Learn about the hidden costs that can be triggered when you redeem mutual fund shares. Even no-load funds have fees and expenses you may not know about.
  2. 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.
  3. Investing

    12b-1: Understanding Mutual Fund Fees

    Many mutual funds charge investors a 12b-1 fee to pay for marketing and promotion expenses.
  4. Investing

    The ABCs of Mutual Fund Classes

    Do you understand how the various types of shares differ? We give you the pros and cons of each.
  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

    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.
  7. Investing

    The ABCs of Mutual Fund Classes

    There are three main mutual fund classes, and each charges fees in a different way.
  8. Investing

    A Guide For Picking Long Term Mutual Funds

    Learn about considerations for investors when buying shares in a mutual fund for a long-term investment, including fees, type of management and portfolio goals.
  9. Investing

    Mutual Fund Fees: Here's What You're Paying For

    It is important to understand mutual funds fees so that you know what you are paying and to whom, and how that impacts your portfolio returns.
  10. 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. Why Do Most of My Mortgage Payments Start Out as Interest?

    Fear not: Over the life of the mortgage, the portions of interest to principal will change.
  2. What is the difference between secured and unsecured debts?

    The differences between secured and unsecured debt, and how banks buffer risks associated with each type of loan through ...
  3. How Many Times has Warren Buffett Been Married?

    Warren Buffett has been married twice in his life, but the circumstances surrounding the marriages were unconventional.
  4. What's the smallest number of shares of stock that I can buy?

    Many people would say the smallest number of shares an investor can purchase is one, but the real answer is not as straightforward. ...
Trading Center