Understanding Mutual Fund Costs

Mutual Funds Are Not Free.

Mutual fund fees are taken directly out of your performance by the mutual fund company. These mutual fund costs are expressed as the expense ratio. The expense ratio is a fund’s total annual operating costs divided by its net assets. The average stock mutual fund has an expense ratio of about 1.37%.1 In other words, for every $10,000 of investment you are paying $137 in mutual fund fees every year. If you have the average account balance for a median-sized, long-term fund of $73,6602 invested in a mutual fund with a 1.37% expense ratio, owning this mutual fund will cost you $1,009 per year.

The expense ratio, however, does not include all mutual fund costs. Mutual funds incur trading commissions that reduce the value of their shares, and they are not required to report these costs to investors. As a result, investors are subject to additional “invisible” fees. A recent study published by the Financial Analysts Journal and reported on in U.S. News and World Report3 estimates that investors pay an average of 1.44% per year in trading costs on top of the expense ratios. That makes the combined total average cost of owning a mutual fund almost 2.81% per year.

Funds are also required by law to distribute capital gains annually—those distributions can be taxable to you.

Prior to investing in any mutual fund, you should carefully read the mutual fund prospectus, which includes disclosures about management fees and expenses, as well as the fund’s objectives, strategies and risks.

Mutual Fund Investment Minimums

Use our tool to look up the minimum required investment for the mutual fund of your choice or to view the entire list. Be sure to look at our mutual fund family page to view the prospectus for the fund you have chosen. There may be conditions or special rules that apply to the minimum investment.

Mutual Fund Redemption Fees

Some mutual funds impose a redemption fee on certain transactions. If you buy a mutual fund then sell all or part of your shares in the mutual fund before a specified time period, usually from 30 to 90 days, the mutual fund company may charge you a redemption fee.

Mutual fund companies use redemption fees to discourage market timing, where active traders trade in and out of a mutual fund too quickly, which can negatively impact long-term shareholders.

Redemption fees vary in amount, but the SEC limits them to 2% of the amount being sold.4

You should always read a fund’s prospectus to review the fees and expenses. Our Mutual Fund Families and Prospectuses page provides links to the prospectuses of the funds we make available.