How to Find Hidden Mutual Fund Fees

The advantages of investing in mutual funds

Since their inception, mutual funds have been a very popular investment vehicle for the investor who is not that much of a risk taker. Investors with limited knowledge, money, and time have benefited from investing in mutual funds because of their simplicity and several other attributes including:

Diversification – ask any seasoned investor and they will tell you that diversification is the best way to balance out your portfolio and minimize risk with your investments.

Divisibility – mutual funds can be purchased in smaller denominations than round lots of stocks and range from as little as $100 up to $1,000.

Economics of scale – since you can take advantage of the purchase and selling size of most mutual funds, this helps to reduce the cost of transactions.

Liquidity – the ability to get in and out of mutual funds without much difficulty defines how liquid they can be due to the fact that you can sell them in a short period of time or hang on to them for years.

Professional management – mutual funds are typically managed by a “fund manager” who is responsible for taking the investor’s fund pool and invest those funds to the greatest benefit to the group of investors concerned.

Mutual funds and hidden fees

Despite the fact that mutual funds are one of the safer investments you can make, not all of them are alike, especially where the charges and fees with purchasing them are concerned. What you need to be aware of is the fact that there hidden fees that oftentimes exist with different mutual funds. Most mutual funds come with a load fee or sales charges. Those funds that do not are referred to as “no-load” mutual funds.

There are several fees attached to mutual funds that you need to anticipate whenever you are purchasing them, including:

• loads or sales charges (mentioned above)
• management fees
• 12 B-1 fees (fees which help to determine the funds’ value)

When a fee is asked for up front, it is referred to as a “front-end” load. Additionally, there are “back-end” fees as well which usually diminish the longer you hold on to the fund.

However, it is the third fee above where other fees or hidden fees are typically found. You need to watch for hidden fees with these 12 B-1 fees, or “C shares” as they are more commonly referred to. Typically, these fees are charged to cover certain fund operating costs including:

• marketing
• prospectuses
• sales
• software

How to protect yourself from hidden fees

In order to protect yourself from unpleasant surprises involving hidden fees, the first thing you want to do is examine the fee structure of the funds you are investing in. Numerous strategies have been developed by investment management companies for the purpose of keeping the money rolling in. Although it is not uncommon for fees to be charged to cover a variety of fund operating expenses, the total fee charges oftentimes harbor other hidden fees that you are not aware of. So it is imperative that you examine the fee structure as thoroughly as you can.