Shareholder & Operating Fees
Mutual fund fees are classified as either shareholder fees or operating expenses. Shareholder fees are charged when you buy load funds, redeem shares within a restricted period, or if your account balance falls below a required minimum.
Operating expenses, or annual asset-based fees, cover the cost of running the fund. These expenses include investment management fees, administrative fees and 12b-1 fees, which are used for marketing and distribution.
Operating expenses are typically quoted as an expense ratio, or a percentage of the fund's assets, and range from less than 0.1% to 2.75% or more. Actively managed funds tend to have higher expense ratios than passively managed funds because of the extensive resources and oversight required to execute transactions and manage a fund's investments on a day-to-day basis. The more resources needed to manage the fund, the higher the fund's fee.
Operating expenses are charged before the fund computes its daily net asset value, and your account is credited with your share of the fund's gains or losses.
A fund's marketing, distribution and certain shareholder expenses are paid for through 12b-1 fees, which are named for a provision of the Investment Company Act of 1940 that allows them. The NASD limits the authorized charge to no greater than 1% of the fund's total assets, with no more than 0.75% allocated toward marketing and distribution. Both load and no-load funds may charge 12b-1 fees, though not all funds do.
Investors should consider the investment objectives, risks, charges, and expenses of a mutual fund carefully before investing. A prospectus contains this and other information. A mutual fund prospectus is available through www.scottrade.com or through a Scottrade branch office. The prospectus should be read carefully before investing.