As with any business, running a mutual fund or ETF involves costs. For example, there are costs incurred in connection with particular investor transactions, such as investor purchases, exchanges, and redemptions. There are also regular and recurring fund-wide operating expenses that are not necessarily associated with any particular investor transaction. Such operating expenses can include, for example, investment advisory fees, marketing and distribution expenses, brokerage fees, and custodial, transfer agency, legal, and accountants’ fees. Funds pass these costs along to shareholders in the form of various fees and expenses. These fees and expenses are identified in a standardized fee table located near the front of a fund’s prospectus.
As you might expect, fees and expenses vary from fund to fund. A fund with high costs must perform better than a low-cost fund to generate the same returns for you. Even small differences in fees can translate into large differences in returns over time.
