What are the Common Fees That an Investor Has to Bear While Investing in Mutual Funds?
If you are not earning expected returns even after making considerable investments then it will clearly indicate that there is something wrong with money management strategies you are using. In addition to it, various fees associated with investment products may be reducing the overall returns you are able to earn.
As such, it will be necessary for you to discuss your requirements with a wealth manager so that investment can be made in financial products where higher returns can be earned.
In this context, let us look at different expenditures related to mutual funds that are to be borne by any investor when making an investing in mutual funds.
Expenditures Related to Investing in Mutual Funds
Fees Related to Purchase or Redemption
In certain mutual funds, there is a requirement that investor has to pay a certain percentage whenever sale or purchase of such mutual fund occurs. Moreover, this amount is deducted out of the final transaction value.
However, payment of fees becomes necessary only when someone sells the mutual fund within a specific time period. Let us look at an example to illustrate it in a better manner.
Suppose, you want to sell shares you are holding right within three months from the time they were purchased. In such situation, the redemption fees shift back within the mutual fund and are in turn used for offsetting trading expenditures.
These ratios are calculated as a specific percentage of funds that have been invested. Like for instance, total investment’s 1.35%.
If you consult money management experts it will become clear to you that such details do not appear in your statement. This is due to the fact that such expenditures get deducted out of your returns before they are received.
Let us go through one example that clearly illustrates what actually happens.
Suppose, you have a mutual fund that will provide you 5% return, however, due to expense ratio of 1.35%, in reality, you will be earning only 3.65% as the return. Additionally, this 1.35% will be utilized for administrative as well as management expenses.
Lastly, you need to remain aware of the fact that such expense ratio differs from one company to another and also on the basis of funds in which investment is to be made.
By discussing your investment goals with a money management expert you will be able to know that it is possible to avail a lesser expense ratio when a large investment is made.
A financial advisor or money manager will have knowledge of such companies where you will be able to avail a lower expense ratio and they would also be able to tell how much investment you will have to make.
Commissions and Loads
Loads are a type of fees which you are required to pay while buying or selling securities. However, you will be paying such loads to the investment company instead of the fund.
Regarding commissions, a broker gets the commission when any purchase or sale of securities takes place. The broker receives this payment for helping in the purchase of the shares.
As we can see there are various fees that you as an investor will be liable to pay and as such, it will be necessary to consult a competent advisor to select the right products before Investing in Mutual Funds.