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Lecture # 25
Mutual Funds
Cost of Ownership
Management Fee
• All mutual funds, including no-load
funds, have certain fixed expenses
that are built into their per share net
asset value. These expenses are
the actual costs of doing business.
• They are deducted from the assets
of the fund. It is advisable to check
the prospectus to determine the
percentage of the fund's total net
assets that is paid out for expenses.
• Additionally, shareholder services
provided by the fund, investment
adviser's fees, bank custodian fees,
and fund underwriter costs also
come out of the fund's assets.
These charges vary from fund to
fund; however, they are clearly
spelled out in the prospectus.
• On a per-share basis, however,
management expenses are usually
quite small, because they are
spread over the tens of thousands,
or the millions, of shareholders in
the fund.
Redemption Fee
• All load funds levy a sales charge
when purchasing shares. Some
load and some no-load funds also
charge a redemption fee when you
take money out (redeem shares).
The redemption fee is a percentage
of the amount redeemed, usually
0.05%(1/2 of 1%).
• Avoid funds with redemption fees.
There are excellent funds available
that will meet your objectives and
do not levy redemption fees.
• Generally redemption fees are
levied only with the intent to cut
down
on
the
number
of
redemptions the fund experiences.
The bottom line is that you are
entitled to the full value of the
shares you redeem.
Switching Fee
• Most, if not all, open-end mutual
funds permit you to transfer all or
any part of your investment from
one fund to another fund within its
family. This kind of transfer is
commonly called "switching"
• For many years there was no
charge required switching funds. In
recent years, however, some funds
have started to charge for
switching. It is usually a flat fee.
The few funds that are charging the
investor for this service say it is to
discourage too frequent moving in
and
• out of funds. Constant switching of
funds increases the administrative
costs involved in keeping track of
customer accounts made.
Maintenance Fee
• Be on the lookout for a fee that is
being
assessed
against
the
shareholder's account (s) directly. It
is called an "account maintenance"
fee. According to prospectuses of
the funds that levy this fee, it is to
"offset the costs of maintaining
shareholder accounts."
• The fee is deducted from the
dividends to cover the maintenance
fee, enough shares or fractions of
shares
will
be
automatically
redeemed from the account to
make up the difference.
Customary Fees
Charged by Most
Mutual Fund
Companies
Investment
Advisory Fees
• The fund pays a set fee, stated in
the prospectus, for investment
management. This allows the fund
the use of the advisor's investment
research staff, equipment, and
other resources.
• Administrative
and
accounting
services, such as data processing,
pricing of fund shares, and
preparing financial statements., are
included in this fee.
Transfer
Agent Fees
• The fund pays a set fee for each
account for maintaining shareholder
records and generating shareholder
statements, plus answering your
phone
inquiries
and
correspondence.
Audit Fees
and Expenses
• Each fund is audited annually by an
internationally
recognized,
independent accounting firm which
is not affiliated with the fund.
Custodian Fees
and Expenses
• The Fund's assets, represented by
stock
certificates
and
other
documents, are held by an outside
source for safe keeping.
Directors' Fees
and Expenses
• The
Fund's
directors
are
compensated for their time and
travel. The Board meets at least
quarterly, as a whole and in
subcommittees, to review the fund's
business. (Directors or officers who
are employed by the fund receive
no compensation from the fund for
serving as directors.)
Registration:
• The SEC and various state
securities agencies charge fees
permitting a fun's shares to be sold.
Reports to
Shareholders
• Annual, semiannual, and interim
reports are printed and mailed to
shareholders on a periodic basis.
Mutual Funds
Frauds
Investment Fraud
• Information is an investor's best tool
when it comes to investing wisely
and avoiding fraud. And the best
way to gather information is to ask
questionsabout
both
the
investment and the person or firm
selling it.
• It doesn't matter if you are a
beginner or have been investing for
many years, it's never too early or
too late to start asking questions.
• Too many investors who've suffered
losses at the hands of swindlers
could have avoided trouble if they
had only asked basic questions
from the start.
• This section will help you recognize
and avoid different types of
investment fraud. You'll also learn
what questions to ask before
investing, where to get information
about companies, who to call for
help, and what to do if you run into
trouble.