Costs of Owning Funds

Other costs are involved with mutual funds. Different classes of shares can be sold for the same fund, with some involving the front-end load charge, whereas others charge an exit fee. Some funds also charge a so-called 12b-1 fee to pay for promoting the fund to other potential investors, and the size of this fee varies by the class of shares. We consider the issue of share classes in a later chapter.

Investors should pay close attention to the 12b-1 fee because it is a straight deduction from their results. If a fund does not charge this fee, the investor is that much further ahead. The original purpose of the fee was to compensate the distributors of the fund for seeking out new shareholders, which in turn would distribute the overhead of the fund over a larger number of people, thereby benefiting all the fund's shareholders.