Mutual Fund Fees: Look at the Total Picture

Why should you care about mutual fund fees? Because fees are deducted from your account balance, they reduce your total return and, ultimately, the size of your nest egg when you retire. Consider how just a one percentage point difference in fees - for instance .5% vs. 1.5% - could affect your account over time. Assuming an average annual return on a hypothetical account bearing 7%, that 1% could make the difference between a plan participant retiring with $298,301 vs. $402,608 after 35 years of investing.1

All About Fees

When evaluating redemption fees, it's important to understand how they fit into a fund's overall fee structure and the services you receive in return for the various fees you pay.

Management fees are used to pay for the ongoing expenses that keep the fund operating, such as the portfolio manager's salary, the fund's prospectus, etc. Management fees vary significantly depending on the nature of a fund's investments. For example, actively managed stock funds in which portfolio managers conduct extensive research may have higher fees than passively managed funds that track a particular index.

So-called 12b-1 fees cover fund marketing and distribution expenses such as broker and trading commissions, advertising, and various service fees.

Total operating expenses combine management fees, 12b-1 fees, and other miscellaneous operating expenses into one figure often called the total expense ratio. The total expense ratio is a fairly accurate estimate of how much a shareholder may pay annually as a percentage of his or her total investment in a fund. Total operating expenses are deducted throughout the year from the fund's NAV (Net Asset Value) and in effect, reduce the return an investor would otherwise receive.

Redemption fees are different from other mutual fund fees in that they are incurred only as a result of redemption action taken by an individual investor and therefore are applied only to that investor.

1Source: Standard & Poor's. Example assumes beginning balance of $25,000 and continuous contributions of $100 a month. This example is for illustrative purposes only. Investment results will vary.

Investors should consider the investment objectives, risks, charges and expenses of the investment company carefully before investing. The prospectus contains this and other information about the investment company. You can obtain a prospectus from your financial representative. Read carefully before investing.

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