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Mutual Fund Basics
Do You Know What You're Paying For?
by Bill Behr (Write for us!)
(Click on the links within the article to get definition of that word)
For example, say that you have a municipal bond fund that hypothetically pays you a 5% dividend. Let's also say that the fund hypothetically collects 1% in fees. Out of a total of 6%, the fund takes 1% or 16% of the total income. You may be surprised that you pay this high a percentage in costs.
A fund's expenses are broken into three categories:
A fund's expense ratio is its total expenses divided by average net assets and is published in its prospectus. It is, however, difficult to compare the fees and expenses paid by funds because the manner in which they pay these expenses can vary widely. Sometimes the cost of all services provided to the fund and its shareholders is included in a fund's expenseratio. Other times this ratio excludes some services, such as marketing or financial advice, because they are paid by the individual shareholder.
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