Understand Fee of Mutual Funds

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As we mentioned in previous articles we know that our government only represents about 30% of our retirement income. The company retirement pension plan offers another 30 % and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plans.
Mutual fund is a pool of investor's money and is sold as a unit. It is an open end fund and is managed by professionals. It also must meet certain regulations of the security commissions and laws governed before it can be sold to general public. In this article we will discuss mutual fund fees.

1. Acquisition fee
If fees are imposed at the time mutual fund shares are purchased, it is called an acquisition fee or front-end loading charge. It used to be 1- 5% of the amount purchase. Investors can always negotiate for a lower fee with their financial adviser.

2. Redemption fee
Fees are paid at the time when money is withdrawn from the mutual fund. Redemption fees represent a percentage of either the amount of the initial investment or the current market value of the holding, usually 5% and decreases over time depending on the years of money remaining in the mutual fund purchased. Usually after 7 years, the money withdrawn carries 0% redemption fee.

3. No load fund
No load funds do not charge sales fees. Most no load funds do not have sales forced. It usually finds investors through advertising, direct mail, and still charging a management fee and probably a trailer fee arrangements with stockbrokers.

4. Managing fee
a) Management fees are represented as a significant cost for both closed-end and mutual funds, usually range from 0.5% to 2.5% being deducted directly from the assets of the fund before calculating return to investors. Some specialty have managing fees over 3%.
b) A good way of comparing the management fees of various funds is the management expense ratio also known as MER. MER, expressed as a percentage is an annual ratio of all fees and expenses to the average net assets of the fund excluding sales fees.
c) All fund companies pay their agents annual commissions, known as trailer fees.

Unlike no load funds, most acquisition and redemption fee funds are sold through financial advisers or insurance agents who also have mutual fund licenses. They are experts in their field. It is nice to have someone to talk to after initial purchasing.
Before deciding to invest in mutual funds, it is necessary to look at the 10 years return graph of each fund, the fund manger and expense ratio. Please do not assume all of these types of funds are the same, some equity funds always return below the same equity index while others have beating the same index year over year.

I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:

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