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Costs

It costs money to run a fund, and shareholders have to pay these costs. It stands to reason that the higher the costs, the less the net return, other things being equal. Think of a fixed investment that returned 10 percent a year, compounding year after year with essentially no expense involved (if, of course, you could find such an investment). This investment will outperform many mutual funds even if they can consistently earn a higher rate because the fund has to deduct the costs of operations.

Ignoring the load charge, the annual operating costs of the typical equity fund will be approximately 1.4 percent of assets per year, and this is a direct deduction from the investment returns of the fund. As we saw when we considered classes of shares, redemption fees and higher 12b-1 fees might be involved, depending on which share class the investor owns.


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