Most people think
of mutual funds as no-load or load, because that is what
they see in the media. But, there are a host of mutual fund
expenses that can be charged to a no-load mutual fund as
well as a load
mutual fund. About 99% of mutual funds charged fees. The
mutual fund that
you
choose
should
have low yearly fees so they don't eat up the money you make
on your fund.
Fees
Mutual funds have a variety of costs. These costs include
yearly management fees, administrative charges, taxes and
loads. Most of us are familiar with loads because we frequently
hear the terms, load or no-load in the media. The other costs
are usually not discussed by the media. Some mutual funds
charge an upfront or back-end load, while others have no-load.
Know what load your fund charges. Many are as low as zero,
while others are as high as 8.5%. Loads can be used to pay
your broker's fee, and other administrative costs.
Some, but not all mutual funds have 12b-1 or b fees. These
fees are used to pay for advertising and other administrative
costs. A fund with a 12b-1 fee of .25% or less is still considered
a no-load fund.
Turnover Rate
Some mutual funds have what is called a low turnover rate.
When mutual fund managers buy and sell a high number of stocks,
with frequency, within a fund, it will have a high turnover
rate, causing a higher capital gains tax, the opposite is
true with low turnover mutual funds. Check the fund reports
for the turnover rate. A rate of 80 or less is usually considered
low. Taxes are not a reason to not buy a mutual fund, after
all, we have to pay taxes on our employee wages, and just
about everything else. For funds within a retirement account
taxes are deferred until they are sold at retirement.
Index Funds
Index funds are known for their extremely low yearly management
fees, because they are not actively managed. Some average
.20%, which is extremely low, almost insignificant.
Charges
All mutual funds are charged yearly management fees. These
fees are the vehicles, which enable the fund to pay its costs.
Choose funds with low yearly management fees. These will
be charged for the life of the fund you choose; therefore
it is prudent to focus on funds with low yearly fees. Examples
of low fees are charges of 1.25% or less. Of course, who
cares what the fees are if the fund is paying phenomenal
returns!
Interest Rates
In the year 2000, a typical growth mutual fund returned
12% or more with compounded interest. Don't forget, compounded
interest happens over a period of years!
In comparison, a 3% passbook account could lose 2% to inflation
and another 1% to taxes, with only simple interest returns,
your true interest rate could be zero.
Mutual funds are liquid accounts, funds can be withdrawn
at any time, without penalty in most accounts, (exceptions
are accounts with back-end loads and retirement accounts).
Know if your mutual fund pay- out date is quarterly, every
six months(bi-annual), or yearly. If you take money out
of your mutual fund pay-out date, you will loose your interest
payment, on that money, for that year if it is yearly,
and so forth.
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