Three Hidden Fees In Mutual funds

Investors in stock have to be wary of hidden fees in most managed mutual funds.  These fees are hidden as they are not in published annual expense ratio.  What is the effect of these fees? Since they are passed on to shareholder they could add up to 2 to 3% in addition to the brokerage commission.  This in effect reduces your return on investments.  This blog look at some of the hidden fees.

Custodial fees

A custodian of mutual fund is an entity that holds security owned by mutual fund. This entity could be a trust company, organization or commercial bank.  The fee they charge is known as the custodial fee. It is important to note that, while virtually all fee-only investment advisors have custodial fees; most don’t readily disclose the fee. The only way to avoid this is to Investing directly in funds that you select yourself.

Brokerage fee

This is the cost of the broker who handles the transaction.  Not all firms charge this fee firms brokers like Fidelity and Vanguard don’t charge for their own funds.  This fee can be avoiding by reading the fine print gives to get the scoop on what brokers waive their fund transaction fees.

No loaded mutuals

These are No-load, no-transaction-fee funds.  This reduces fund operating expenses, and hence a high return to the investor.  Firms like Charles swab offer low expenses funds.  However some people argue that management of the funds if more crucial that just looking at the expense.  My opinion is that the funds are buy are well manages and have low fees.

However the investor has to reminder that just like with any business, running a mutual fund involves costs. For example, there are costs incurred in connection with particular investor transactions, such as investor purchases, exchanges, and redemptions.  It is up to a prudent investor to do their due diligence to optimize their investment strategies

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