Understanding fees and costs associated with mutual funds:

What are the fees and costs associated with purchasing, owning and selling mutual funds.  The purpose of this post is to provide the reader with general comments on this subject.  Please be advised that this information is being provided for educational purposes only and is not designed to be complete in all material respects.  Thus, it should not be relied upon as providing legal or investment advice.  If you have any questions concerning the contents of this post, you should consult with a qualified professional.

As with any business, running a mutual fund involves costs. Funds pass along these costs to investors by charging fees and expenses. Fees and expenses vary from fund to fund. A fund with high costs must perform better than a low-cost fund to generate the same returns for you.

Even small differences in fees can mean large differences in returns over time. For example, if you invested $10,000 in a fund with a 10% annual return, and annual operating expenses of 1.5%, after 20 years you would have roughly $49,725. If you invested in a fund with the same performance and expenses of 0.5%, after 20 years 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. See the Mutual Fund Glossary for types of fees.