Mutual Fund Expenses There's no free lunch when it comes to mutual fund investing. Fund investors are hit with a multitude of fees: management fees, administrative fees, 12(b)-1 fees, front-end loads, back-end loads, interest costs, brokerage fees, etc. It's enough to make an investor's head spin. And, unlike a restaurant check, your fund bill usually isn't itemized. In this article, we'll try to sort out the mess. We'll start by dividing fund fees into two main categories: Ongoing expenses, which are already accounted for by the return figures you see in Morningstar products and the newspaper; and those that aren't, which include sales fees and transaction fees.								> Home > Glossary > Support

		Possible Mutual Fund Expenses and Fees
		Accounted for in Fund Return		Not Included in Fund Return
		Management Fee *		Front-end Sales Load
		Group Fee *		Back-end Sales Load
		Performance Fee *		Redemption Fees
		12(b)-1 Fee *		Account Maintenance Fees
		Brokerage Costs
		Bid-ask Spreads
		Interest Costs
		* An asterisk indicates fee is included in a fund's expense ratio.

		Pay As You Go Let's begin with the first group: fees that are accounted for in a fund's returns. One of the largest expenses that fund investors must pay is the management fee. The management fee is the compensation that the advisor receives for managing the portfolio. A fund's management fee might have several components, including a group fee, which is levied according to the percentage of the fund company's overall assets that the fund represents, and a performance fee, which will raise or lower the management fee based on the fund's performance. Although management fees often represent a big chunk of fund expenses, they're not the only costs, and you certainly wouldn't want to compare funds solely on the basis of their management fees. There are also administrative fees, which pay for the day-to-day operations of the fund, as well as the cryptic 12(b)-1 fee that some funds charge. The latter is named after the line of legislation that made it possible. The fee is used to pay for a fund's advertising and distribution costs. By law, a fund's 12(b)-1 fee can be no more than 1% a year. (You might see a fund's 12(b)-1 fee split into a distribution fee, which is capped at 0.75%, and a service fee, which cannot exceed 0.25%.) Together, all of these fees are included in the expense ratio, which is the most commonly used measure of a fund's overall expenses and a figure that is frequently used to compare mutual fund costs. Keep in mind, however, that the actual expense ratio might not equal the sum of these fees, as the published management fees are the maximum that the fund company can charge, and not necessarily what the fees were for a fund's most recent accounting year. One ongoing expense that is not included in the expense ratio is the brokerage costs incurred by a fund as it buys and sells securities. These costs are listed separately in a fund's annual report, sometimes as a percentage and sometimes as a dollar amount. Some trading costs, however, are not included in this figure. The spread between the bid and ask prices of over-the-counter stocks, for example, can be thought of as a trading expense, but such costs are not reported by fund companies. The annual report also includes any interest costs, which a fund will incur if it borrows money to buy securities.

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