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- 1). Get a copy of a mutual fund prospectus. This is a full-disclosure document that the U.S. Securities and Exchange Commission (SEC) requires all mutual fund companies to provide to investors. Every mutual fund has a prospectus. It can be found on the company's website or by requesting one from your broker. See Resources for an example.
- 2). Understand the term "load," which is another word for "sales charge" in mutual fund terminology. A load mutual fund has a sales charge on the front end of the purchase. A no-load mutual fund does not have a sales charge, but it may increase fees in other areas to compensate.
- 3). Understand the purchase fee, which is paid to the fund, not the broker. It is meant to defray the fund's costs of purchasing securities.
- 4). Understand what 12b-1 means. The 12b-1 fees are simply distribution or service fees charged by the fund. This can include fees for custodial services, accounting or legal.
- 5). Understand the meaning of an expense ratio. It is in the fee table in the prospectus and represents the total of all annual operating expenses for the fund. It is expressed in percentage form.
- 6). Understand the meaning of "classes." Mutual funds can have different types of shares issued. The different types of shares are usually referred to as Class A, Class B, etc. Each class may have a different level of service, distribution, fees or expenses associated with performance.
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