The High Cost of Mutual Funds

According to Morningstar, the mutual fund monitoring service, the average mutual fund in its 14,592 fund database still charges the following extremely high expenses:

  • Investment management expenses ——–1.39% per year
  • Front-end commissions paid to brokers—1.14%
  • Deferred commissions paid to brokers—-1.00%

This means an investor who puts $100,000 into the average mutual fund would pay $2,530 in total fees in the first year. And 1.39% of whatever the fund is worth every year thereafter, and another 1% when they take the money out.* Since mutual funds’ fees vary dramatically, some investors pay a lot more.

What should an investor do?

  • Only use mutual funds when appropriate. BWFA recommends using mutual funds when your account is small or in cases where funds will help diversify your portfolio at a reasonable cost, such as with foreign stocks.
  • Always look at fees before buying a mutual fund.

* Deferred commissions generally do not apply for funds held longer than 5 years.