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Transcript, 2 minutes 30 seconds, for use during week of Nov.
Description: Penny, Susan and Ira talk about factors to
consider when researching mutual funds.
Announcer: Invest Wisely comes to you from Iowa State University
Extension through a grant from the Investor Protection Trust,
providing investor education on the web at: investorprotection.org.
Susan: Penny, we’ve talked about the advantages of mutual
funds for investors. What should I consider when looking
at mutual funds?
Penny: Remember, with mutual funds you’re paying for the
expertise of the people who manage the funds. So, you can
expect to pay a management fee but that fee will vary from fund
Ira: Can there be other fees?
Penny: Some funds charge a fee or “load” of 3 to
6 percent when you buy shares. But there are many “no-load” mutual
funds that don’t charge this fee. Other funds don’t
charge when you initially invest, but do charge a redemption
fee or back-end load if you sell your shares within a certain
number of years. Funds may also charge what is termed a
12b-1 fee, which is an annual fee covering the marketing costs
of the mutual fund company.
Susan: It looks like the different fees could really affect
my returns. How can I find the right mutual fund for me?
Penny: You need to consider the expense ratio of the mutual
fund. That is, the percentage of the fund’s net assets
that go to annual operating expenses. To do this, you can
use a mutual fund calculator. The Securities and Exchange
Commission provides one. Go to www.sec.gov and
click on ‘Investor Information.’
Ira: So if two funds have similar performance I should select
the one with the lowest expense ratio?
Penny: That’s right!
Susan: Are there tax concerns with mutual funds?
Penny: Good question, Susan. Unless the mutual fund is
part of a tax-deferred account, the distributions--capital gains,
dividends or interest--must be reported by the investor as income. In
addition to tax on income made by the mutual fund while you own
it, when you sell shares, you may have a capital gain or loss.
Ira: Thank you, Penny. You’ve given us lots to consider.
Penny: You’re welcome. And remember for more information,
visit ISU Extension at extension.iastate.edu and look for ‘Invest