Understanding Mutual Fund Fees

MoneyWatch's Jill Schlesinger breaks down the layers of mutual fund fees - from 'loads' to distribution fees.

Mutual funds provide investors with an easy way to invest in the stock market and diversify their holdings. Of course those conveniences come at a cost. In a fund world there are many layers of fees that you pay. Management fees are the costs associated with investing your money in the fund. These fees pay the research team and portfolio managers who run the fund. Administrative fees cover the record keeping and customer service costs of the fund. Finally distribution or 12 B1 fees now that's a mouthful pay for the marketing of the fund. The total of management, administrative and 12 B1 fees is called the expense ratio of the fund. Mutual fund expense ratios can range from .1% to 2% with the average being approximately 1%. When you purchase a mutual fund through a broker, banker, advisor or insurance sales person you'll pay an additional layer of fees. Traditionally these fees have been in the form of commissions called loads. The only way to avoid mutual fund loads is to buy something called appropriately a no load fund.