Mutual find investing is without doubt simpler and less fraught with pitfalls than investing in stocks. Mutual funds are associated with professional managements, earnings that are simple to reinvest, and diversification. These are all great benefits, particularly for investors who do not have an in depth knowledge of markets.
Despite that, picking the best mutual fund is far from easy. Different mutual funds give widely differing results. More than anything else, it is hard to know what mutual fund sector to invest into first. In addition to this, and this is a point that many first time investors (and not just) do not put enough research into, is the fees that the mutual fund levies for its services
The most straightforward, and unavoidable fee is the management fee. This ranges from 1.25-1.75 percent of the annual net asset value. If your fund is not taking this fee then it is not a professional fund! This is just the first of a range of fees, however, that will cut into your profits. The load is the best known of these, and this is the commission use to pay the salesperson.
Load funds takes this commission either up front (from the sum invested) or as a back load, upon the sale of shares. No load funds do not charge a sales commission, and are therefore attractive to many investors.
However, you need to be aware that many so called no load funds still charge a variety of fees under a wide range of names. These hidden fees in no loan funds means that no load funds are not automatically a better bet than load funds. Some of them charge what is called a 12b-1 fee. This is charged to pay for fund promoting. The fee is not so high, at one quarter to three quarters of one percent, however over a period of time, it can add up. be aware that not all no load funds charge this fee, and if they do they are not really ‘true’ no load funds.
No load funds maybe be subject to other fees, such as ‘administrative’ fees, ‘custodial fees’ and ‘managerial’ fees. A load fund can in this way pay for its salespeople through a fee which has a different name. If these charges are levied annually and based on your net asset value, taken together they may mean you end up paying even more than if you paid an up front charge for a load fund.
The lesson to be learnt is not to blindly sign up for no load funds just because they are no load funds. Not all such funds are created equal. Some of them do provide genuine savings, other just disguise the apparent savings in other fees. Always check the small print, and happy investing!
To find out more, go to:
en.wikipedia.org
