Fees and Expenses

Whenever a mutual fund manager runs a mutual fund, they have to charge a fee. This is because running a mutual fund is a business and all businesses require money to operate. Without money, the fund simply cannot exist.

As for why the money is needed, there are certain fees that are associated with the transactions themselves. Any time a person purchases a share within a mutual fund, there is a fee. The same occurs when they exchange and when they sell. The fees are charged because the mutual fund manager is charged fees in order to execute these transactions.

But in order for the mutual fund manager to make any money for doing his or her job, there may be commissions, advisory fees, and such charged in order to make their living. Don't let this alarm you, though, because they are necessary and are usually not astronomical. The fact the fees are not too expensive is why so many in the different income classes invest.

Types of Fees

The types of fees can vary. The basic transaction fees are always in place. However, the actual fees for managing the mutual fund can include advisory fees, fees from the broker or fund company, transfer agency fees, custodial, and expenses for marketing and distribution. There may also be accountant fees or even an account fee.

You don't have to worry too much about these fees, as frightening as they sound, because they are not frightening at all. As said before, there are plenty of individuals within the different income classes investing. When it comes to mutual funds, you can invest as much or as little as you want. But the question is why mutual funds are so special?

The fees are more or less contributed by a group of individuals. A mutual fund is called a mutual fund because a number of individuals have placed their money within it. For most, this is the preferred type of investment because of how risk is distributed throughout the portfolio. There are mutual funds that are worth billions of dollars because of the number of investors involved.

Whatever the fees, though, the fund manager will provide all investors with a prospectus that has a fee schedule within it. This is a requirement of the SEC. So you can expect to know what you will be charged for certain actions that you take toward your share of the mutual fund.

As for whether or not the SEC caps the fees that can be charged, they don't. However, in many cases the SEC will limit the redemption fees so that investors are not charged too much to carry out the sale of their shares. But although the SEC itself does not impose limits, the Financial Industry Regulatory Authority does.

Recurring Fund Expenses

The fund may have recurring expenses. These are the operating expenses of the fund. Fortunately, these fees are usually paid out of the fund assets rather than the expenses being passed on to the investor. However, the investor is technically paying these expenses indirectly.

As for why a mutual fund has expenses, it is because, again, a mutual fund is a business. It has expenses like a business. Without these expenses, it simply would not survive.

There are a variety of fees that can be imposed based on a person's specific investment situation. The above fees are the basics, but there may be such fees as a deferred sales charge, a sales charge, on purchases, and what is called a "sales load," which is a fee payable to the broker doing the selling. Nevertheless, the fees and expenses can vary from broker to broker and situation to situation.

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