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3. Best brokers for mutual funds

Mutual Fund Fees Explained

When browsing a broker’s mutual fund listing, you may find confusing information on several different kinds of fees.

Fees vary from fund to fund — it all depends on the broker. That’s why it’s important to always read the fine print and shop around. However, note that most funds will pay operating fund expenses out of each fund’s assets, instead of you having to foot the bill.

Here are some typical shareholder fees for mutual funds:

  • Sales Loads: These are the commissions you pay to the broker who sells you the mutual fund. There are two kinds of sales loads:
    1. Front-End: You pay these when you purchase the fund shares.
    2. Back-End: You pay these when you sell your fund shares.
  • Redemption Fees: As suggested by their name, these fees are assessed when you sell your fund shares.
  • Exchange Fees: If you transfer your shares to another fund, you could be charged this fee.
  • Account Fees: Plain and simple, these are maintenance fees. They vary by broker.
  • Purchase Fees: These fees are similar to sales load commissions, but they’re paid to the fund, not the broker.

And these are typical annual mutual fund operating expenses:

  • Management Fees: These are paid out of fund assets for the fund’s investment advisor. They cover the management of the fund’s portfolio.
  • Distribution (12b-1) Fees: These are applied to a fund’s costs for marketing, advertising, printing, etc. Luckily, FINRA places a 0.75% cap on these fees.
  • Other Expenses: This category encompasses all other fees you may have to pay — including custodial fees, legal and accounting expenses, administration costs, etc.

Pay close attention to the fees your stock broker is charging you — a high-yield fund with high fees could be earning you less retirement money over the long run than a fee with lesser returns but smaller fees.

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