Investing can be an expensive business. Not only do you have to deal with what you might lose should the markets head the wrong way, you need to deal with a bunch of fees and commissions all the time too. Every time you make a trade, there are costs to pay. Trading mutual funds is no different.
Even when you invest in a mutual fund and stay with it for years, you still need to pay expenses and fees when trading it. The expense ratio for most mutual funds hovers around the 1% mark. There is no such thing as a mutual funds that has no fees attached. While the fees may be inescapable, the commissions are not. There are certain scenarios in which you could trade, and never have to pay any additional charges.
How do you do this? Well, you just have to learn what those scenarios are.
The top mutual funds will usually sell their funds directly. When you buy directly from them, there are no commissions involved. You don't have to pay a commission to sell or trade either if you go straight to the company to make your purchase. How do you buy directly from the source? Well, it's easy – you just log on to the company's website.
Brokerage firms will often keep a list of mutual funds that they offer to let you trade commission-free. That can work too.
In general, it's always a good idea to avoid mutual funds that have a policy of charging a redemption fee. It's difficult to sidestep these when a mutual fund company charges you something like this. How do you know which ones do?
Well, it's all in the fine print. What do you think they fill all those pages up with?
And it's not a small sum of money either. Usually, it's something between 1% and 2%. The best way to go would be to avoid a mutual fund altogether that has this kind of a habit.
There are several mutual funds out there that have this nasty habit of charging a sales load. Some do it when you buy in, and others do it when you cash out. It can be quite a load – the law requires that no company charge more than 8.5% here. Wonder what these companies would charge if there wasn't a limit.
The sales load is the money that pays the broker's their commission. The only way to find out if a mutual fund done does this is to look at the fine print.