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Costs of Mutual Funds

With every mutual fund, there are ongoing costs associated with owning shares called operating expenses. These expenses are commonly expressed as an expense ratio (i.e., the fund's total annual operating expenses expressed as a percentage of the fund's net assets). While investors don't pay these expenses directly, they are deducted from the fund's assets before any earnings are distributed to shareholders and will impact overall fund performance and total return. Expenses vary from fund to fund, and from fund family to fund family.

Operating Expenses

Management fee
  • Ongoing fee charged by the investment adviser to manage the fund
  • Generally the largest component of operating expenses
  • Calculated as a certain percentage of assets under management
    (reflected in the expense ratio)
12b-1 fee
  • Distribution fee for marketing and distribution expenses
Miscellaneous fees
  • Miscellaneous administration charges

Additional Fees
Mutual funds generally are not considered short-term investments. A mutual fund or brokerage firm may also charge additional fees, including fees for redeeming shares within the first year or 18 months of ownership. These fees can vary, and generally are outlined in the fund's prospectus and brokerage firm's fee schedule.

For example, some mutual fund companies impose mandatory holding periods on purchases of fund shares to discourage market timing, short-term trading, or other frequent exchangers of mutual fund shares. Because frequent trading negatively affects remaining fund shareholders by increasing the transaction costs to the fund, some mutual fund companies charge an additional fee, commonly known as a short-term redemption fee, on the redemption of mutual fund shares that are not held for the required holding period.

Common fees include:
  • Short-term redemption fee
  • Exchange fee
  • Transaction fee
  • Annual account maintenance fee

Check the fee table in a mutual fund's prospectus and the commission schedule to review the fees and expenses of the mutual fund you have selected. It's important to review a mutual fund's share class structure and expenses along with your investment objectives, time horizon and risk tolerance when determining if a fund will meet your financial needs.

In addition to ongoing costs of owning mutual fund shares, some funds also charge a sales charge. To learn more about sales charges associated with buying and selling mutual funds refer to our articles "Buying Mutual Funds" and "Selling Mutual Funds."

As with any other investment, owning mutual funds may subject you to certain taxes. See our article on 'Mutual Fund Taxes' to learn more.

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These articles are for information and education purposes only. You will need to evaluate the merits and risks associated with relying on any information provided. Although this article may provide information relating to approaches to investing or types of securities and investments you might buy or sell, Wells Fargo and its affiliates are not providing investment recommendations, advice, or endorsements. Data have been obtained from what are considered to be reliable sources; however, their accuracy, completeness, or reliability cannot be guaranteed. Wells Fargo makes no warranties and bears no liability for your use of this information. The information made available to you is not intended, and should not be construed as legal, tax, or investment advice, or a legal opinion.
Contact Wells Fargo Advisors or your investment professional for a mutual fund's current prospectus, which contains more complete information on investment objectives, charges, fees, risks, and expenses. Please read and consider the information in the prospectus carefully before investing.

Mutual funds available without transaction fees may change at any time without notice. Therefore, any mutual funds purchased without a transaction fee may be subject to a transaction fee for subsequent purchases or upon liquidation.
Wells Fargo Advisors, LLC (Member SIPC) does not provide tax or legal advice. Please see your tax and legal advisors to determine how this information may apply to your own situation.