The Real Cost Of A Mutual Fund
Do you own a mutual fund? Chances are if you have a retirement account like an IRA, Roth IRA, or even a Simple Plan at your place of work you may be dealing with a mutual fund. In this article I’m going to give you the mutual fund basics on the real cost of your mutual funds and give you the tips on investing to get your money in the best place possible.
The Sale Charge
The first fee that comes with most mutual funds is the sales charge. This is a fee that is collected with the initial sale of the mutual fund. The typical fee will range from 4% to 6% and will be deducted when you open the account. However some companies like Vanguard and Fidelity don’t even charge sales fees and have been keeping prices low for investors to help them combat against other companies who charging much higher sales loads like American Funds who charge a 5.75% fee for opening an account.
The Annual Expenses
The next expense is the annual expenses that mutual fund companies will charge on an annual basis. These expenses will include things like maintenance fees to maintain the fund, to 12b-1 fees that some companies will charge for the cost of their sale literature, and other expenses. Some companies like Transamerica Funds will charge high expense fees around 1.19% and other companies will charge a lot less like Vanguard who will charge around 0.23%. These fees can save you a bundle when it comes opening an account.
For example if you opened an account at Transamerica and put $30,000 in the account you would pay 4.75% for the sales charge and an annual expense charge of 1.19%. This would equate to $1773 in the first year of opening the account.
On the other hand if you would have opened an account with Vanguard you would have only paid an annual expense fee of 0.23% which would have equated to a total fee of $69. This would be a cost saving of $1704.
Final Thoughts
Obviously it’s easy to see that checking the fees of a mutual fund is very important. To learn more about the fees of your mutual fund simple find a copy of your latest funds prospectus which will include all of your funds fees and expenses in it.
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