Understanding Fees
Just as there is no free lunch, there is no free fund.
Running a mutual fund costs money, and all funds charge various fees to cover their expenses. As an investor, you can profit by understanding the types of fund expenses and how they can affect your ultimate return.
Management fee
Virtually all funds charge an annual fee to pay the investment adviser that managers the fund, including the portfolio manager for making buy, sell, or hold decisions. As a general rule, the more aggressive or exotic the style of fund, the higher the fee.
Because it’s a recurring fee (usually stated as a percentage of average net assets), keeping it as low as possible can be important for maximizing long-term performance.
12b-1 fee
This is an annual fee used to pay for distribution costs, including advertising and the distribution of fund literature such as prospectuses and annual reports. At Pax World, it is normally 0.25%.
Front-end load
Some funds sell their shares through a commissioned sales staff. If you buy shares of such a fund, you pay the commission, or “load,” which can range from about 2% to 9%, and is ordinarily in the 4% to 5% range. Pax World Funds do not charge a load.
As an investor, your bottom-line guide to a fund’s fees is its “expense ratio”: the total annual charges, expressed as a percentage of fund assets. This figure is listed in the fund’s prospectus. All other things being equal, a lower expense ratio can mean higher returns for you in the long run.
Back-end load
Also called a redemption fee or an exit fee, it’s a charge for selling the shares you hold in a fund. It can be short-term (to encourage you to stay with a volatile fund for at least, say, six months), long-term (you pay whenever you sell), or something in between (you pay a fixed or declining rate if you sell during the first few years of ownership). As stated above, Pax World Funds do not charge a load.
*Pax World High Yield Fund has a 2% short term redemption fee imposed on shares sold within forty-five (45) days of purchase.