When you’re considering investing in a mutual fund, it’s important to understand how much you would be paying in fees and expenses, as well as the specific purpose for those charges.
Fund expenses cover the investment and day-to-day operating costs of the fund. Depending on the fund company’s policies and the structure of the funds themselves, fees and expenses may extend to cover additional costs, like marketing expenses for the fund.
Common fees and expenses
The Securities and Exchange Commission (SEC) requires that investors receive a full disclosure of mutual fund fees and expenses. However, this doesn’t mean that the information is always easy to understand. Here’s a list of the common fees and expenses associated with mutual funds, although not all fees apply to all funds:
- Fund operating expenses
These expenses are frequently expressed as a fund’s expense ratio, which is how much a mutual fund charges its shareholders by percentage per year. A good rule of thumb is the lower the ratio, the lower the operating costs passed on to shareholders. The different types of fees included in the expense ratio are:
- Management fees
These cover the day-to-day management of a fund by portfolio managers and research analysts, who monitor the portfolio and make investment decisions. These fees may vary as some funds are more expensive to run due to the nature of the fund’s focus. For example, it typically costs more money to research smaller emerging markets stocks than it does to research large U.S. stocks. Stock funds are generally more expensive than bond funds. Actively managed funds are often more expensive than index funds.
- Distribution/12b-1 fees
Some funds may have an annual marketing or distribution fee, generally 0.25–1% of the fund’s net assets.
- Other expenses
Fees which cover other costs of operating the fund including fees for legal, accounting, record keeping and other administrative costs.
- Sales loads or charges
When you buy mutual fund shares, there’s often a broker or other intermediary party who helps the fund company sell the fund. The sales load (a percentage of the purchase) is how these intermediaries receive compensation. There are two common ways sales loads are structured:
- Front-end load
This sales charge is applied at the time of an initial purchase of mutual fund shares. When a front-end load is paid, the public offering price (POP) is higher since it reflects the sales charge, so you purchase fewer shares than if you purchased at the net asset value price (NAV). NAV is the price used to value your account, as well as the price used when you sell your shares.
- Back-end load
This fee is paid when selling shares in a mutual fund within a defined time period, often five–10 years. The fee amounts to a percentage of the value of the shares being sold. The fee percentage is highest in the first year and decreases yearly until the specified holding period ends, at which time it drops to zero.
Funds will charge either the front-end, or the back-end load, but not both. Since these two sales loads are a one-time fee and specific to the size of the purchase, they aren't reflected in a fund's expense ratio.
- Redemption fees
Some funds charge a fee for withdrawing money from a mutual fund account within a set number of days after making a purchase. These fees are usually used to discourage shareholders from making too many "round trips" (purchases followed by a redemption) in a short period of time.
- Transaction fees
Transaction fees are charged by a broker or other intermediary for providing assistance in purchasing or selling shares of a fund. These fees can be charged up-front or when selling the shares.
- Low balance fees
When the balance of an account falls below a certain level, some funds charge a low balance fee to cover the higher costs associated with maintaining small accounts.
- Annual retirement custodial fees
A flat fee charged by a bank or brokerage for administering or managing an IRA/retirement plan.
- Overnight or wire fees
A fee charged by a broker or transfer agent for sending money using an expedited service for delivery of the assets.
What to expect from Thrivent Mutual Funds
When you choose to invest with Thrivent Mutual Funds, we try to keep the fees and expenses low, and as clear and simple to understand as possible. Here’s a list of the fees and expenses you can expect:
Class S Shares refers to Thrivent Mutual Funds – Class S Shares
Class A Shares refers to Thrivent Mutual Funds – Class A Shares (not available for purchase on thriventfunds.com)
