Mutual Fund Fees
Your Money Confined


There are costs associated with running mutual funds. These costs are passed along to investors as fees that help pay for various investor transactions as well as regular operating expenses. The fees associated with mutual funds can be difficult to navigate and have long-reaching effects for the stockholder. As such, it is important that investors understand the fees they will be subjected to. The fees associated with a particular mutual fund will be listed at the front of the fund prospectus under the heading of a fee table. Here you should be able to identify not just what fees are associated with the particular fund but also what rate you, as an investor, will be paying. This is important!

The SEC website states:

Even small differences in fees can translate into large differences in returns over time. For example, if you invested $10,000 in a fund that produced a 10% annual return before expenses and had annual operating expenses of 1.5%, then after 20 years you would have roughly $49,725. But if the fund had expenses of only 0.5%, then you would end up with $60,858. It takes only minutes to use a mutual fund cost calculator to compute how the costs of different mutual funds add up over time and eat into your returns.

The SEC does not limit how much financial companies can charge in fees associated with a mutual fund. We are regularly charged a percentage of the total money invested in a fund. This can be quite a bit of money when calculated on an annual basis. We are charged fees as an individual investor in association with our personal monies involved in a fund as well as being charged fees that are listed as overall operating expenses. These fees can be found in the prospectus under “Annual Operating Fund Expenses.”

All of the stockholders of a mutual fund pay these fees even if the fund does not make money. This can have quite an effect over time. If charged during down years (like 2008 and 2009) it can take a long time to see growth in your investment. The financial company that owns the mutual fund is guaranteed to at least make a profit due to the fee structure of the mutual fund. They are the real beneficiaries of this relationship. They make money during good years in the market and they are insulated from the losses during the bad. Wouldn’t it be nice to find a safe, tax-free, liquid, and guaranteed way to make returns and not have the same type of fees charged? We believe that we have.

Bill Fagergren

Paradigm Life