Finding out about fund fees

Fortunately for you, the investor, all the information you
need to know about a fund’s fees is in one place — the
prospectus. You should never invest in a fund without reading
its prospectus.

After you download this document, scrutinize it carefully to
ascertain your obligations for the following:

n Load fee: A load fee is a sales commission or charge you
pay when you purchase a fund — generally around 5
percent. A no-load fund is one that does not require you
to pay a commission or entry fee to invest in the fund.
Most experts recommend no-load funds because a
load fee immediately diminishes the amount of your
investment.

n 12b-1 fees: These are an alternative to load fees, used to
compensate the person who sells the fund shares. A fund
that charges a 12b-1 fee of less than .25 percent is considered
a no-load fund.


n Redemption fees: A redemption fee is often charged
instead of a load fee. You pay this fee when you sell your
mutual fund shares as opposed to when you buy into the
fund. Typically, redemption fees decline over time to
encourage you to hold onto your investment longer.

n Annual operating expenses and administrative costs:
These fees cover the basic costs of running the fund and
are generally disclosed in the prospectus.

n Management fees: These fees cover the costs of all those
lawyers, accountants, and bookkeepers that make sure
the fund complies with SEC rules. These, too, are disclosed
and estimated in the fund prospectus.

Index funds tend to charge
lower fees than mutual funds. The reason for the lower fees
is that after choosing stocks to mirror a given index, the funds
require little management. Table 4-1 compares the performance
of actively-managed funds with the performance of an
S&P 500 stock index fund over a three-year period.