Mutual fund fees include sales charges, expense ratios, distribution fees, and redemption fees. Sales charges are a percentage of the purchase price, while expense ratios cover ongoing costs like salaries and administrative expenses. Distribution and redemption fees may also apply.
Mutual fund fees are an amount of money that mutual funds charge to cover certain expenses. Most of the time, investors will have to pay a sales charge when they buy shares of a fund. In addition, they will have to pay an expense ratio that covers the salaries of fund managers, as well as other administrative costs. Other mutual fund fees that could be charged include distribution fees and redemption fees.
Most mutual fund fees are charged to keep the mutual fund running. One of the first mutual fund fees an investor will be charged is the sales charge. A sales charge is a certain percentage of the purchase price, and works like a commission. Brokers who sell mutual fund shares receive this commission for attracting clients to the fund. Some funds do not charge this fee if an investor buys shares directly from the mutual fund company.
Instead of charging a sales charge at the beginning of the investment, some mutual fund companies charge this fee at the end of a transaction. In such cases, the investor pays the fee when he cashes in the shares. This is known as bottom loading.
Another great source of mutual fund fees is the expense ratio. This fee is used to cover the ongoing costs of the fund. While the sales charge is typically a one-time fee for the investor, the expense ratio is charged each year. It will generally be quoted as a percentage of the fund’s assets. This money comes from the profits that are generated from the trading activities of the fund.
A large part of the expense ratio goes towards paying the salaries of fund managers. Fund managers are in charge of making the investment decisions for the mutual fund. Another part of the expense ratio goes to pay the administrative costs of the fund. For example, some of the money will go towards paying for the leased property to house the fund’s headquarters. This proportion will cover the costs of customer service personnel, legal fees and any other expenses incurred.
Some mutual funds also charge distribution and redemption fees. This means that an investor might have to pay a certain amount of money to cover the advertising costs of the fund. Redemption fees are sometimes charged to discourage investors from selling shares quickly.
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