Mutual Fund Fees & Expenses-Fidelity (2024)

The following information is provided by the United States Securities and Exchange Commission (SEC).*

As with any business, running a mutual fund 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 fund operating costs that are not necessarily associated with any particular investor transaction, such as investment advisory fees, marketing and distribution expenses, brokerage fees, and custodial, transfer agency, legal, and accountants' fees.

Some funds cover the costs associated with an individual investor's transactions and account by imposing fees and charges directly when investors buy or sell a fund, while others charge fees periodically to all shareholders in the fund. These fees and charges are identified in a fee table, located near the front of a fund's prospectus, under the heading “Shareholder Fees.”

Funds typically pay their regular and recurring, fund-wide operating expenses out of fund assets, rather than by imposing separate fees and charges on investors. Keep in mind, however, that because these expenses are paid out of the fund’s assets, investors are paying them indirectly. These expenses are identified in the fee table in the fund's prospectus under the heading “Annual Fund Operating Expenses.”

Many customers ask whether the SEC imposes any specific limits on the size of the fees that a fund may charge. The short answer is the SEC generally does not, although the SEC limits redemption fees (the fees charged when a customer sell shares in a fund) to 2% in most situations. The Financial Industry Regulatory Authority (FINRA), however, does impose limits on some fees.

Shareholder fees

Sales loads including sales charge (load) on purchases and deferred sales charge (load)

Redemption fee

Purchase fee

Exchange fee

Account fee

Annual fund operating expenses

Management fees

Distribution [and/or service] (12b-1) fees

Other expenses

Total annual fund operating expense

Shareholder fees

Sales loads

Funds that sell their shares through brokers, or intermediaries, must compensate those brokers. Funds may do this by imposing a fee on investors, known as a “sales load” (or “sales charge (load)”), which is paid to the selling brokers. In this respect, a sales load is like a commission investors pay when they purchase any type of security from a broker. Although sales loads most frequently are used to compensate outside brokers who distribute fund shares, some funds that do not use outside brokers still charge sales loads.

The SEC does not limit the size of a sales load a fund may charge, but the NASD does not permit mutual fund sales loads to exceed 8.5%. The percentage is lower if a fund imposes other types of charges. Most funds do not charge the maximum.

There are 2 general types of sales loads—a front-end sales load investors pay when they purchase fund shares and a back-end, or deferred, sales load investors pay when they redeem their shares.

Sales charge (load) on purchases

The category “Sales Charge (Load) on Purchases” in the fee table found in a fund’s prospectus includes sales loads that investors pay when they purchase fund shares (also known as “front-end sales loads”). Keep in mind that a front-end sales load reduces the amount available to purchase fund shares. For example, if an investor writes a $10,000 check to a fund for the purchase of fund shares, and the fund has a 5% front-end sales load, the total amount of the sales load will be $500.This $500 sales load is first deducted from the original $10,000 investment (and typically paid to a selling broker), and, assuming no other front-end fees, the remaining $9,500 is used to purchase fund shares for the investor.

Deferred sales charge (load)

The category “Deferred Sales Charge (Load)” in the fee table refers to a sales load that investors pay when they redeem fund shares (that is, sell their shares back to the fund). You may also see this referred to as a “deferred” or “back-end” sales load. When an investor purchases shares that are subject to a back-end sales load rather than a front-end sales load, no sales load is deducted at purchase, and all of the investors' money is immediately used to purchase fund shares (assuming that no other fees or charges apply at the time of purchase). For example, if an investor invests $10,000 in a fund with a 5% back-end sales load, and, if there are no other “purchase fees,” the entire $10,000 will be used to purchase fund shares, and the 5% sales load is not deducted until the investor redeems his or her shares, at which point the fee is deducted from the redemption proceeds.

Typically, a fund calculates the amount of a back-end sales load based on the lesser of the value of the shareholder's initial investment or the value of the shareholder's investment at redemption. For example, if the shareholder initially invests $10,000, and at redemption the investment has appreciated to $12,000, a back-end sales load calculated in this manner would be based on the value of the initial investment—$10,000—not on the value of the investment at redemption. Investors should carefully read a fund's prospectus to determine whether the fund calculates its back-end sales load in this manner.

The most common type of back-end sales load is the “contingent deferred sales load,” also referred to as a “CDSL,” or “CDSC.” The amount of this type of load will depend on how long the investor holds the shares and typically decreases to zero if the shares are held for a long enough time period. For example, a contingent deferred sales load might be 5% if an investor holds the shares for 1 year, 4% if the investor holds the shares for 2 years, and so on until the load goes away completely. The rate at which this fee will decline will be disclosed in the fund's prospectus.

A fund or class with a contingent deferred sales load typically will also have an annual 12b-1 fee.

A word about no-load funds

Some funds call themselves “no-load.” As the name implies, this means that the fund does not charge any type of sales load. As described above, however, not every type of shareholder fee is a “sales load,” and a no-load fund may charge fees that are not sales loads. For example, a no-load fund is permitted to charge purchase fees, redemption fees, exchange fees, and account fees, none of which is considered to be a “sales load.” In addition, under NASD rules, a fund is permitted to pay its annual operating expenses and still call itself “no-load,” unless the combined amount of the fund's 12b-1 fees or separate shareholder service fees exceed 0.25% of the fund's average annual net assets.

Redemption fee

A redemption fee is another type of fee that some funds charge their shareholders at redemption. Although a redemption fee is deducted from redemption proceeds just like a deferred sales load, it is not considered to be a sales load. Unlike a sales load, which is generally used to pay brokers, a redemption fee is typically used to defray fund costs associated with a shareholder's redemption and is paid directly to the fund, not to a broker. The SEC generally limits redemption fees to 2%.

Purchase fee

A purchase fee is another type of fee that some funds charge their shareholders when the shareholders purchase their shares. A purchase fee differs from, and is not considered to be, a front-end sales load because a purchase fee is paid to the fund, not to a broker, and is typically imposed to defray some of the fund's costs associated with the purchase.

Exchange fee

An exchange fee is a fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group.

Account fee

An account fee is a fee that some funds imposeseparately on investors in connection with the maintenance of their accounts. For example, some funds impose an account maintenance fee on accounts whose value falls below a certain dollar amount.

Annual fund operating expenses

Management fees

Management fees are paid out of fund assets to the fund's investment advisor. They also include any other management fees payable to the fund's investment advisor or the advisor’s affiliates and administrative fees payable to the investment advisor that are not included in the "Other expenses" category (discussed below).

Distribution [and/or service] (12b-1) fees

This category identifies so-called “12b-1 fees,” which are fees paid by the fund out of fund assets to cover distribution expenses and sometimes shareholder service expenses.

“12b-1 fees” get their name from the SEC rule that authorizes their payment. The rule permits a fund to pay distribution fees out of fund assets only if the fund has adopted a plan (12b-1 plan) authorizing their payment. “Distribution Fees” include fees paid for marketing and selling fund shares, such as compensating brokers and others who sell fund shares, and paying for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature.

The SEC does not limit the size of 12b-1 fees that funds may charge. But under NASD rules, 12b-1 fees that are used to pay marketing and distribution expenses (as opposed to shareholder service expenses) cannot exceed 0.75% of a fund's average net assets per year.

Some 12b-1 plans also authorize and include “shareholder service fees,” which are fees paid to persons to respond to investor inquiries and provide investors with information about their investments. Unlike distribution fees, a fund may pay shareholder service fees without adopting a 12b-1 plan. If shareholder service fees are part of a fund's 12b-1 plan, these fees will be included in this category of the fee table. If shareholder service fees are paid outside a 12b-1 plan, then they will be included in the “Other expenses” category, discussed below. The NASD imposes an annual 0.25% cap on shareholder service fees, regardless of whether these fees are authorized as part of a 12b-1 plan.

Other expenses

Included in this category are expenses not included in the categories “Management Fees” or “Distribution [and/or Service] (12b-1) Fees.” Examples include shareholder service expenses that are not included in the “Distribution [and/or Service] (12b-1) Fees” category, custodial expenses, legal expenses, accounting expenses, transfer agent expenses, and other administrative expenses.

Total annual fund operating expense

This line of the fee table is the total of a fund's annual fund operating expenses, expressed as a percentage of the fund's average net assets. This overall figure is often referred to as the Total Expense Ratio, or TER.

Those fees can also be viewed as a measure across all the impacted positions in a portfolio, a measure called the Weighted Average Expense Ratio (WAER). WAER is an average net expense ratio for the mutual funds and ETFs held in investment accounts, expressed as a percentage of the value of all holdings in those accounts (not just the mutual funds and ETFs). The operating expenses and management fees for mutual funds and ETFs are represented as a percentage called "net expense ratio" and are embedded into the net asset value (NAV) of the investment. Net expense ratio does not reflect commissions or any investor sales charges. The WAER is an annualized figure that reflects the fees associated with the funds in investment accounts and is weighted based on the relative size of each holding in the accounts.

A final word about mutual fund fees and expenses

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. Even small differences in fees can translate into large differences in returns over time.