Identification

• In the prospectus or fact sheet of any mutual fund, you will find the fees, expense ratio and load listed. Additionally, if you are buying your mutual funds through a broker or salesperson, they should be able to give you the information.
  
  

Types

• There are four main types of fees associated with mutual funds--administrative fees (usually expressed as an expense ratio), load or redemption fee, 12b-1 fee and account service fee. Not all mutual funds charge all of these fees, although all mutual funds do have an expense ratio.
  
  

Function

• Each of the fees serves a different purpose. The expense ratio of a mutual fund encompasses all of the general expenses of the fund, including administration, taxes, legal fees, management fees and more. Expense ratios usually range from 0.2 percent for very cost-efficient funds to 2 percent for less efficient funds. Sales loads and/or redemption fees are sales charges, which do not pay for any of the costs of running the fund--they are simply collected by mutual fund salespeople. The 12b-1 fees, which are usually around 1 percent, are for advertising and can be expressed as part of a mutual fund's expense ratio. Account service fees pay for account mailings and other related expenses,and can often be avoided entirely by maintaining a certain account balance.
  
  

Benefits

• Keeping mutual fund expenses low is a great way to improve returns and enhance a fund's performance For instance, $10,000 invested in a fund earning 10 percent interest with only 0.5 percent in expenses will be worth $173,600 in 30 years, but that same $10,000 invested in a fund with 5 percent in expenses will only be worth $165,700.
  
  

Warning

• Heavily advertised funds are tempting, but investors must be aware that these slick advertisements are paid for with investors' money. Although some loaded funds may outperform their unloaded counterparts, it is unlikely that they will perform well enough to recoup the cost of their loads year after year.