When do mutual funds take their fees

Total Annual Fund Operating Expenses. Funds that use brokers to sell their shares typically compensate the brokers. Funds may do this by imposing a fee on investors, known as a sales load or sales charge , which is paid to the selling brokers. In this respect, a sales load is like a commission investors pay when they purchase any type of security from a broker. Although sales loads most frequently are used to compensate outside brokers that distribute fund shares, some funds that do not use outside brokers still charge sales loads.

There are two general types of sales loads—a front-end sales load investors pay when they purchase fund shares and a back-end or deferred sales load investors pay when they redeem their shares. The category "Sales Charge Load on Purchases" in the fee table includes sales loads that investors pay when they purchase fund shares also known as front-end sales loads.

The key point to keep in mind about a front-end sales load is it reduces the amount available to purchase fund shares. The category "Deferred Sales Charge Load " in the fee table refers to a sales load that investors pay when they redeem fund shares that is, sell their shares back to the fund.

You may also see this referred to as a deferred or back-end sales load. Some funds call themselves no-load. As the name implies, this means that the fund does not charge any type of sales load.

As described above, however, not every type of shareholder fee is a sales load, and a no-load fund may charge fees that are not sales loads. For example, a no-load fund is permitted to charge purchase fees, redemption fees, exchange fees, and account fees, none of which is considered to be a sales load. You must be familiar with the entry load and exit load of a mutual fund. When an investor has to pay a nominal charge when he purchases a fund unit, it is called an entry load.

Not all funds levy this. SEBI deferred this in August for mutual funds alone. This is a fee levied on investors when they decide to redeem their mutual fund units. The rate for this is not fixed. Exit load is variable and falls in the range of 0. No exit charges apply if you redeem your units after the lock-in period.

For instance, say, if a fund is priced at Rs. This is the fee which the investor pays on a daily, quarterly, or annual basis. Recurring fee is generally charged for maintaining the portfolio, advising, marketing, and other expenses. It is also referred to as the periodic fee. The management fee is an expense charged for paying the fund manager for his services and the management of the investment.

This does not come under other expenses. Some AMCs charge investors for maintaining their account if they do not meet the minimum balance criteria. They deduct this expense from the portfolio of the investor. Mutual fund fees generally fall into two big buckets:. Annual fund operating expenses: Ongoing fees toward the cost of paying managers, accountants, legal fees, marketing and the like. Shareholder fees: Sales commissions and other one-time costs when you buy or sell mutual fund shares.

Limited time offer. Terms apply. These fees, also known as mutual fund expense ratios or advisory fees, typically are between 0. Management fees: The cost to pay fund managers and investment advisors.

Other expenses: These may include custodial, legal, accounting, transfer agent expenses and other administrative costs. The total annual fund operating expenses are expressed as a percentage of the fund's net average assets. This mutual fund calculator can help.

Sales loads: These are commissions you pay when you buy or sell mutual fund shares. More on this below. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. As with any for-profit business enterprise, the mutual fund industry charges fees for the services it offers.

In their most basic form, these services consist of managing a pool of commingled assets in accordance with an investment strategy. That strategy may include outperforming an index over time. In fact, this strategy is the lifeblood of the actively managed fund component of the industry.

A well-managed fund will tend to grow in popularity and earn more investors over time. However, for several decades now, and for reasons that used to make much more sense than they do today, mutual funds have charged existing investors for marketing and promoting their services to prospective investors.

These charges are known as 12b-1 fees. A mutual fund charges its investors a 12b-1 fee to pay for marketing and promotion expenses. According to a discussion of 12b-1 fees on the website for the Securities and Exchange Commission SEC , "these fees are deducted from a mutual fund to compensate securities professionals for sales efforts and services provided to the fund's investors.

It also details that 12b-1 fees first emerged in the s during a period when mutual funds were seeing significant redemptions and wanted an avenue to help attract new assets. The funds needed sufficient assets to protect existing investors from the fund managers' having to make forced sales at depressed asset prices or when stocks and bonds were not trading at favorable levels.

The fee's official name stems from a SEC rule implemented to authorize its use. Fast forwarding approximately half a century, the ability for funds to charge 12b-1 fees has grown more controversial.

Mutual funds are much more popular these days, which makes the original motivation for creating the fee much less meaningful. Funds are also much larger, with the largest managing hundreds of billions of dollars in assets.