What are Mutual Fund Expenses?
My name is Robert Bonavito, New Jersey Forensic Accountant. This video is part of a series of videos where I discuss forensic accounting topics for educational purposes only.
We spend a lot of time in court testifying on investments for clients, and sometimes brokerage houses will retain us to do testimony in court. And a lot of times, the product is some type of mutual fund that we're actually testifying, as if it was a good product or a bad product. But today, we're going to talk a little bit about costs of mutual funds because people don't seem to understand that when you buy a mutual fund, there's a cost.
For example, if you send them money and they put it in a mutual fund or they have advertising, don't you think that someone has to pay for that? The buildings, the people who answer the phones when you call them and the Internet, and all that stuff that they have set up, all that overhead has to be paid for by the people who are investing in the mutual fund, right? Makes sense. So that is a cost and remember, there's other costs involved, like, there's sales charges. Sometimes when you buy a mutual fund, the person who sold it will get up to 4% or 5%.
Record keeping, which we discussed, and there's invisible fees, I love invisible fees. There's other things that you don't know that are behind the scenes you're being charged for because if you have a mutual fund with billions and billions of dollars, and you charge that fund, let's say, $30 million, that's a very small percentage. But, it's what I call invisible fees and who knows what it could be for.
And then there's also redemption fees, sometimes when you sell your fund, there'll be a 4% fee coming out. So, just like anything else, there's no such thing as a free lunch. So when you buy a mutual fund, you have to understand the cost structure because you're paying for those cost. You're paying that when you call them, you're paying for all the services you get and redemptions, and all that type of stuff. There's no free lunch here, so when you invest in a mutual fund, have a good understanding of what it's costing you. If you have any questions on this topic, just give me a email.