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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Sunday, May 21, 2006

Mutual Fund Fees and Taxes

If you own mutual funds as a straight investment (not in a retirement account) you need to watch out for fees and taxes because they can really lower the overall performance of your mutual fund. As discussed before you want to avoid any fund with a load on it. In today's mutual funds there is no reason to pay a fron or back load on any mutual fund because there are thousands of good/great no load mutual funds available.

Next look out for the expense ratio. Rarely should you ever consider a mutual fund with an expense ratio over 1.5%. Depending on the difficulty of the type of investing the mutual fund does the higher that fee will be. Sometimes big mutual funds might be your best bet here because they often will typically have lower expense ratios because they are huge companies and it costs them less to run their mutual fund.
12b-1 fees can exist as well so look at your mutual fund prospectus to find out if they are applicable.
Capital gains occur when the fund manager sells any stock in the portfolio for a gain. This can be offset by any losses during that same year. So look at how actively the fund is traded (turnover).


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