Investors love diversifying their portfolios to include mutual funds. So much so, that the industry now has over $26 trillion in assets and there are currently over 10,000 mutual funds for investors to choose from. Luckily the Security and Exchange Commission requires mutual funds to disclose all their information about themselves in a writing document called a prospectus. That way, consumers can know exactly what additional fees they may have to pay to partake in the collective investment scheme of their choice.
With the large assortment of mutual funds available, each ones’ offering, including their charges vary. Although some mutual funds may require brokerage commission fees others may not. The best way to know for sure is to research the mutual fund of your liking by thoroughly reviewing their published prospectus. Some mutual funds may not charge flat out brokerage commissions, but may opt to choose to impose certain fees to brokers on the portfolios.
For example, there could be a Sales Charge (Load) on Purchases, which is the front end payment or “load” required to purchase a mutual fund. This amount goes to the broker and is capped by the NASD rules to 8.5% of the total investment amount.
There may also be a broker fee to sell the mutual fund called a Deferred Sales Charge (Load). This amount can fluctuate based on the amount of shares being sold and how long the investment has been held. It is common for this amount to be zero if the investor holds onto the mutual fund for a long enough period of time.
Typically, if a broker handles your mutual fund you can expect that there will be a brokerage commission paid in the guise of one of the aforementioned fees.