Understanding mutual fund fees and their impact on your investment is a key to successful investing. By learning the types of fees associated with mutual funds, you will be better able to make the right investment choices for you. We suggest, however, that fees be evaluated as one element in your investment selection process and not the only factor in selecting the appropriate funds for you.

Sales Charges

Direct-marketed mutual funds are sold directly to you without a broker or salesperson, and as a result, the majority of them are no-load funds, with no sales fees or loads deducted from your purchase to pay a sales commission. We suggest that you obtain the information necessary to make your own mutual fund investments and buy no load funds directly to avoid this unnecessary charge.

Management Fees and Operating Expenses

All mutual funds, regardless of whether they are load or no-load, have management fees and operating expenses. It is the amount that the fund pays to the investment adviser for managing the fund's portfolio or providing other services, such as maintaining shareholder records or furnishing shareholder statements and reports. These fees are reflected in the fund's share price and are not charged directly to the shareholder. The management fee usually ranges from 0.5% to 1% of the fund's total asset value but may be higher for specialized funds.

Redemption Fees

Some funds charge a fee when you redeem (sell) or exchange your shares for shares of another fund from the same company. This can be a simple fee at redemption or an exchange fee, or a contingent deferred sales charge (CDSC). The difference between the two is important.

A redemption fee is often returned to the fund itself, rather than to the management company. This arrangement benefits long-term investors in the fund because they are not paying the transaction costs attributable to investors who are getting in and out of the fund on a "trading" basis.

A CDSC, sometimes called a back-end load, goes to the management company to pay sales commissions. The fee is imposed on shares redeemed within a specific period following their purchase and is usually assessed on a sliding scale beginning at 4-5% of the fund value in the first year, decreasing to zero over the following four or five years. No members of the Mutual Fund Education Alliance levy these charges on their funds.

If you are comparing results of a load fund to a no-load fund, you must adjust performance results to include the load or redemption fee for a more accurate evaluation.

Expense Ratio

The expense ratio is the ratio of total expenses to net assets of the fund and includes management fees, transaction costs, the cost of shareholder mailings and other administrative expenses. The ratio is often a function of the fund's size, rather than the operating efficiency of the fund management, but can also depend on the nature of the investments in the fund.

Since it is important to keep fees and costs as low as possible, investors should examine expense ratios as another method of evaluating whether a particular fund is suitable for their own investment portfolio. Investors should consider past performance objectives of the fund and other service advantages the fund offers, then determine if investment in the fund is worth the costs associated with it.