Mutual funds are a popular investment choice, but the terminology of funds can be confusing. Mutual fund trails is not a well known or understood concept.
Mutual funds trails, or trail commissions, are a type of commission paid to the brokers who sell mutual funds.
Trail commissions are ongoing commissions paid to the broker on assets held in the mutual funds. Brokers usually receive the commission each quarter for their customers' mutual fund accounts.
Trail commissions range from 0.25 percent to 1.00 percent annually of the mutual fund balances.
The source of mutual fund trails is the 12b-1 fees a fund charges shareholders. The 12b-1 amount can be found in the mutual fund prospectus.
High 12b-1 fees can reduce the overall return from a mutual fund. Trail commissions help pay the broker for ongoing mutual fund advice and assistance.