What Is a Low Cost Mutual Fund?

While all mutual funds have charges, which defray operating expenses, low-cost funds seek to keep these costs to a minimum. They are available directly to the investing public and do not have sales charges ("loads") associated with them as advisor-recommended mutual funds do.

How Operating Fees Are Paid

Mutual funds pay their ongoing operating expenses out of fund assets. The shareholder's net return is reported "net" of all deducted costs.

Total Expense Ratio

All expenses such as trading costs for a fund portfolio, record-keeping, and administrative costs and salaries for the support staff are divided into the total portfolio value to calculate the annual total expense ratio.

Index Funds

Index funds are unmanaged funds, which track widely-followed market "benchmarks," have no active portfolio manager, infrequently change securities in their portfolios, and usually have the lowest operating expenses as a result.

No-Load Funds

While no-load funds have an active portfolio manager, there is no cost to purchase the shares. Many no-load fund families have attractive total expense ratios, as well.

A Word About Load Funds

While many high quality, low-cost mutual funds are available, there are also many funds that have loads, which also offer superior results after all sales charges and fees are paid.

References

• SEC Information of Fees and Expenses
• Vanguard.com : 500 Index Fund Fees and Expenses
• Troweprice.com: Spectrum Income Fund Fees and Expenses