Expenses and Prospectus

Expenses
Every mutual fund has expenses. Some funds’ expenses are relatively low while other funds’ have extremely high expenses. You should be aware of a fund’s expenses before you invest because those expenses can have a dramatic effect on your investment returns. The three expenses you should always identify are loads, redemption fees and operating expenses.
Loads are fees that can be charged either when you buy a mutual fund (front-end load) or when you sell a mutual fund (back-end load). These loads are usually used to pay a commission to the agent who sold you the fund. By law, front-end loads cannot be higher than 8.5 percent, but most fund companies opt for load lower than the maximum. Some fund companies have even gone so far as to not charge a load (no-load) on their mutual funds.
Redemption fees are stipulations indicating that if you sell your mutual fund before a certain date, you will be charged a fee. Fund companies impose redemption fees to discourage turnover in the fund.
Operating expenses—management fees and 12(b)-1 fees—comprise the operating expense ratio. These fees are charged as a normal part of doing business for the fund. Management fees go to pay the fund manager for his expertise and time. 12(b)-1 fees cover advertising and distribution expenses for the fund.
Now that you know what expenses you have to account for, where can you go to find out what expenses a fund charges?
Prospectus
A mutual fund company outlines everything you could ever want to know about a fund in the fund’s prospectus. A fund’s prospectus is a booklet that will identify and discuss everything from the fund’s objectives and its past performance to a description of the fund manager and the fees associated with the fund. And if there is something you can’t find in the prospectus, the prospectus provides you will all of the contact information so you can get your questions answered.
Unfortunately, most investors never read through their funds’ prospectuses. But if you want to access this tremendous information, Yahoo! Finance offers and incredible tool to help you locate a fund’s prospectus: the Prospectus Finder.
To watch a video outlining how the Prospectus Finder can help you in your mutual-fund investing, click here.
Now that you know virtually everything about a fund thanks to the prospectus, how do you go about buying that fund?