Sources of Income for Mutual Funds

Mutual funds are funds managed by investment professionals on behalf of investors. Investors pool their money in the fund in order for the fund managers to invest the funds in bulk, often resulting in a higher rate of return than individual investors can earn on their own.

Mutual funds earn money from several sources, and it is important to understand how your fund managers earn income to ensure that the fund's interest aligns with yours.

Management fees

Mutual funds charge you a fee for your invested balance. These fees range from under one percent to well over two percent. This is the main income source for mutual fund management companies.

12b-1 Fees

Some mutual funds charge investors a 12b-1 fee, also called a marketing fee. These fees are generally used for promotional materials to attract new investors to the fund. Depending on how large these fees are, they do diminish your return.

Load Fees

Many mutual funds charge a fee when you buy or sell shares. These are call load fees or purchase and redemption fees. These fees are taken from your initial investment or are taken from your cash redemption when you sell shares. They can be a significant cost for large purchases or sales.

References

• Securities and Exchange Commission - Mutual Fund Fees
• SEC - Mutual Fund Fee Calculator
• ABC News Personal Finance

Resources

• Mutual Fund Fee Calculator