Before you purchase
a mutual fund you should go to one of the financial services
portals, or major web portals to reserach your mutual fund.
Just click the finance channel and under that channel, click
mutualf funds research.
Mutual 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 a mutual fund manager buys and sells a large number
of stocks, with frequency, within the fund, it will have
a high turnover rate. This will cause 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.
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