Every investment is faced with costs that go towards running its operations.
Mutual fund management fees are the biggest challenge facing the investment fund today.
The reason is because, they eat into your returns in the course of operation.
This makes the investments to end up with performance that is below average.
To make it worse, the costs are hidden through layers of financial jargon that many people have no time or capacity to understand.
The mutual fund fees can be broken into two categories; those that are purely to help you remain invested in the fund, and those that you incur when you want to redeem your shares.
So you see, either way, you stand to incur the costs.
The costs incurred when buying shares is known as the load of the fund.
The management fees are not just imposed, they are determined through a given expense ratio.
The ratio is composed of three factors, mainly the cost of hiring the fund managers, which normally ranges between 0.
5 and 1% of the assets.
This may sound like a small cost to incur, but think of what it translates to on a 250 million dollar investment.
The second factor is the administrative cost which includes expenses like postage, record keeping and other customer services.
There is also the 12B-1 fee which goes towards advertisements and market promotion of the fund.
This reminds you that nothing god comes easy.
However, no fund manager has the right to charge you high fees with the promise of high returns because, there is no correlation between the two factors.
Other fees that go with those that have to do with management are redemption fees, exchange fees and account fees.
It would be good to get to know about them before you go about complaining about being ripped off.