Mutual Fund Fees

When employing the services of a broker to invest in mutual funds for you, there are mutual fund fees to know about. These fees occur because all transactions on the stock market are fee-based. These transactions consist of purchases, redemptions, and exchanges. [1]

You then have the operating costs involved and these are the fees that are charged by the manager managing your mutual fund. This person may also be called a financial advisor or a stock broker depending on the variety of services that they are offering. When they manage a mutual fund, they are more appropriately called a "mutual fund manager." The operating costs that they charge involve their standard brokerage fees, advisory fees, accountant fees, and fees for any other services that are provided to you.

It is important to note, however, that the fees should not be discouraging, especially since a mutual fund can yield high returns when managed correctly.  But it is important to consider when you are attempting to choose between working with brokers versus fund companies.

What are Mutual Funds?

To understand the fees associated with mutual funds, it is a must to understand what mutual funds are. The definition of a mutual fund may seem rather frightening, but it isn't. A mutual fund is a collective investment. This means that money is pooled from a number of investors. Within the mutual fund portfolio is a variety of investments. These investments can be stocks, bonds, and various other securities. It is very important to make a portfolio diverse and mix up the degrees of risk. That way if one investment does not perform well, those that do perform well can offset that poor performance. Investments can be unpredictable at times.

As for what is meant by "degrees of risk," investments can be risky. However, one of the reasons why mutual funds are the most popular investment that people make is because a person can have more control over their losses. The fund may be primarily low risk with some high risk involved, may be high risk with some low risk, or may be one of the two extremes in its entirety. Some are equally divided in regards to risk. That way if one investment loses and another gains, the loss is not significant or a gain can still occur.

There are advantages to mutual funds, which also constitute why there are fees involved. Those advantages include the advanced management of portfolios, the fact that dividends can be reinvested to increase the investment amount in order to increase returns, the risk is so diverse that the overall risk is reduced, and the pricing is fair and convenient. [2]

The overall function provided by mutual funds is convenient and can be profitable. Many individuals use these funds to help them accumulate money for retirement. When an account grows large enough, an individual can arrange to take payments from their mutual fund while it still continues to accumulate money.

Understanding Mutual Fund Fees

When you decide to invest in a mutual fund, you will be given a prospectus that is specific to the fund and has a fee table located near its front. [1] The prospectus is something you will want to read over. Within the prospectus is information about mutual fund fees, investment objectives, expenses, risks, strategies, pricing, and performance. This more or less tells you what you need to expect. [3]

So when you are looking to better your financial future through investing, mutual funds can be the vehicle in which you do that. Despite the fact there are fees to facilitate transactions and take advantages of services, the goal of mutual fund managers is to provide their investors with returns on their investments. When the investors win, the portfolio's manager wins.

[1] http://www.sec.gov/answers/mffees.htm 06/10/10
[2] http://www.investopedia.com/ask/answers/10/mutual-funds-advantages-disadvantages.asp 0610/10
[3] http://www.sec.gov/answers/mfinfo.htm 06/10/10

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