Funds' Real Costs

Physician's Money Digest, April30 2004, Volume 11, Issue 8


A mutual fund's expense ratio isspelled out in the prospectus, but thatnumber may be misleading, accordingto a study by the fund mavens at Lipper,Inc ( A low expenseratio may mask hefty commissioncosts on trades, especially if turnover inthe fund's holdings is high. Commissioncosts aren't easy to obtain and most fundshareholders don't even know what theyare; the cost of trades are quietly carvedout of their investment. Lipper estimatesthat the average stock fund pays0.41% of its assets in commissions ontop of an average 1.68% expense ratio.When commissions are added in, however,some high-turnover funds canshow actual costs that are 2 or 3 timesas high as their published expense ratio. Look at portfolio turnover as wellas expense ratios when choosing amutual fund.