Money Market Funds – Mutual Fund Expenses

In addition to comparing the services and advantages offered by each money fund, a money market fund investor should also look at the prospectus for the fund’s expenses, which include management fees, custodial fees, transfer agent fees, legal fees, investment advisory fees and distribution fees, and its expense policy.  By and large, the higher the money market fund expense, the lower an investor’s net total return.

Not all funds fully charge the fund’s incurred expenses to the shareholders.  Many funds use expense policy as a tool to boost yields and attract shareholders.  Thus, many funds waive all of their expenses or absorb part of the charge to enhance their returns.  In most cases, however, they reserve the right to begin charging at some future time. All funds are required to detail their expenses in their prospectuses.  In fact, they also must include a hypothetical example that shows the amount of expenses that would be incurred over various time periods. An annual expense ratio of about .70 to .80 percent, or 70 to 80 basis points, is average for a retail money fund that is geared to consumers.

Some funds use a “12b-1 plan.” The 12b-1 plan was created by the SEC to allow a fund to use fund assets to pay for marketing and distribution expenses.  These include sales commissions as well as advertising and prospectus printing.  While generally accepted, 12b-1 fees should be viewed by an investor as simply another expense when selecting a fund.

This entry was posted on Tuesday, January 6th, 2009 at 3:04 pm and is filed under Mutual Funds. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.