18 Apr Can I avoid mutual fund fees?

Q. I know mutual funds have fees. What are they all, and can I get around them?
— Fee wary

A. When you invest, you can’t avoid all fees, but you can limit what you pay by choosing your investments carefully.

Mutual funds are no different.

“Running a mutual fund involves costs, including shareholder transaction costs, investment advisory fees, and marketing and distribution expenses,” said Bill Connington of Connington Wealth Management in Fairfield. “Funds pass along these costs to investors in a number of ways.”

He said some funds impose “shareholder fees” directly on investors whenever they buy or sell shares.

Plus, every fund has regular, recurring, fund-wide “operating expenses.”

“Funds typically pay their operating expenses out of fund asset,” he said. “This means that investors indirectly pay these costs.”

While the costs may seem negligible, fees and expenses can substantially reduce an investor’s earnings, Connington said.

“As for getting around them, that isn’t really possible as it is the cost of doing business for the fund families, although you could use a more passive approach to your investment by using exchange-traded funds (ETFs) which come with lower costs,” he said.

Learn more about comparing mutual fund fees here, and more on fees in general here.

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This post was initially published in April 2017.