Mutual Fund Hidden Fees Can be Very High

Here is another reason to avoid many managed mutual funds - hidden fees. One culprit is the brokerage commission, the dollars paid to a broker to buy and sell stocks in the fund. The fund passes this expense along to the fund shareholders but doesn't bother to include it in the published annual expense ratio. So in some cases a published annual expense ratio of 2% can translate into a 3% or 4% fee when you include the brokerage commissions.

Forbes magazine, January 31, 2005, published a table of 12 funds will high hidden fees. Nine of the 12 funds had hidden fees that were greater than the published annual expense ratio. So unsuspecting investors were paying more than double the advertised amount. Hidden fees pushed the real expense ratio to over 7% for one fund, over 6% for two funds, over 5% for four funds and over 4% for five funds.

High fees such as these will substantially reduce your total return, particularly if you hold the fund for many years.

Before you buy a managed fund, call the fund and find out about the hidden fees. Or better yet, avoid managed funds and only buy low-cost index funds or exchange traded funds.