How to Understand Mutual Fund Fees
- 1). Gather information about the funds you own or are considering. You can find this information online at the individual fund families' websites, or you may request a paper copy be mailed to you. If you work with a broker or money manager, that person may also provide you with a prospectus.
- 2). Review the fund prospectus and find the expense ratio. This number describes which percentage of the share price is used to cover the cost of running the fund (paying investment advisers, advertising expenses, licensing fees, etc.).
- 3). Look for any "load" fees: fees charged when you buy, sell or exchange the fund. These fees cover the expenses of the brokers who sell the funds. Load fees vary by share class, so be sure you know which share class you will purchase. Typically, this will be B or C shares if you work with a brokerage firm, and A shares if you are working directly with the fund company.
- 4). Compare each fund's fees to its historical performance. You are looking for funds with a high historical return and relatively low fees. You may find that funds with better performance are not the lowest fee funds, but the fees should not be significantly higher than other similar funds.
- 5). If you like, use a fund analyzer to quickly compare the difference between share classes and different funds. FINRA, the Financial Industry Regulatory Authority, offers an online fund analyzer that is free and easy to use (see Resources section).
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