Mutual Fund Fees

Actively managed mutual fund investors pay an average of 3.01% in annual fees, as described below.

Fee Arithmetic
Average		 Detail of Average Calculation Asset Weighted
Average		 Source/Notes
Management Fee 0.69% NA 0.59% Lipper Inc. private study
Commissions 0.20%A NA 0.20%B
  • A Lipper Inc. 2004 report titled "Mutual Fund Trading & Portfolio Transaction Costs", page 3
  • B A report does not exist that asset weights commissions incurred by mutual funds, so we used the arithmetic average in its place
Non-Management Fee 0.47% NA 0.19% Lipper Inc. private study
Marketing Fee (12b-1 Fee) 0.53% NA 0.20% Lipper Inc. private study
Sales Load (includes front & back end loads) 0.54% (1.591%A + 1.114B) ÷ 5C 0.44%
  • A Average total front end load across all actively managed mutual funds from Lipper Inc. private study
  • B Average total back end load across all actively managed mutual funds from Lipper Inc. private study
  • C Amortized over the average mutual fund holding period of five years. (Investment Company Institute, 2010 Fact Book, Chapter 6)
Redemption Fee 0.08% 0.406%A ÷ 5B 0.05%C
  • A Average total redemption charge across all actively managed mutual funds from Lipper Inc. private study
  • B Amortized over the average fund holding period of five years. (Investment Company Institute, 2010 Fact Book, Chapter 6)
  • C Asset weighted average amortized over the holding period of five years. (Investment Company Institute, 2010 Fact Book, Chapter 6)
Opportunity Cost Associated With Embedded Tax LiabilitiesA 0.50% (3.61%B + 1.13%C + 0.04%D)
×
((1 + 8.91%E)5F - 1)
÷
5G 		0.50%H
  • A Embedded Tax Liabilities are only incurred by mutual fund investors and not by individuals who invest via separate accounts or hedge funds. They are also only incurred by taxable accounts. Finally, mutual funds with an unrealized gain are likely to generate an opportunity benefit, not cost.
  • B Taxes due on unrealized gains (gains on a fund’s investments that have not yet been realized) = average annual performance of the S&P 500® Index from 1981-2010 × average ratio of annual return to unrealized gains (Swensen, David F (2005), Unconventional Success (pp. 261-263)) × average combined federal and state capital gains tax weighted for long-term and short-term gains (Lipper (2009)). Taxes in the Mutual Fund Industry (p 13) = 8.91% × 1.76 × 23% = 3.61%
  • C Taxes due on undistributed gains (realized gains that have not yet been distributed to shareholders) = average annual performance of the S&P 500® Index from 1981-2010 ÷ 2 to represent average undistributed gains during a given year × average combined federal and state capital gains tax weighted for long and short-term gains (Lipper (2009), Taxes in the Mutual Fund Industry (p 13)) = (8.91% ÷ 2) × 23% = 1.03%
  • D Taxes due on undistributed investment income (dividends and interest that have not yet been distributed to shareholders) = average annual equity mutual fund distribution of investment income (Lipper (2009), Taxes in the Mutual Fund Industry (p 13)) ÷ 2 to represent average undistributed income during a given year × maximum combined federal and state income tax on qualified dividends = (0.41% ÷ 2) × 20.22% = 0.04%
  • E The taxes are invested at 8.91%, the average annual return of the S&P 500® Index over the past 30 years (1981 to 2010)
  • F Compounded over the average mutual fund holding period of five years (Investment Company Institute, 2010 Fact Book)
  • G The lost opportunity is divided by the average mutual fund holding period to represent an annual loss.
  • H We are not able to asset weight the opportunity cost, so we used the arithmetic average in its place.
Total 3.01%   2.17%  

See Disclosure for a complete explanation of Wealthfront’s methodology. For each of the components presented in the analysis above, an individual mutual fund may exhibit higher or lower expenses than presented by the arithmetic or asset weighted averages.

The S&P 500® ("Index") is a product of S&P Dow Jones Indices LLC and/or its affiliates. For more information on any of S&P Dow Jones Indices LLC's indices please visit www.spdji.com. S&P® is a registered trademark of Standard & Poor's Financial Services LLC and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC.