The Truth About Mutual Fund and Hedge Fund Fees

Here is a list of the fees that Mutual Fund may charge or incur:

1. Front end load (sales commission)
2. Back end load (deferred sales commission – a kick on your way out the door)
3. Management fees (Fund adviser’s income)
4. 12b-1 fees (marketing/distribution fee)
5. Miscellaneous fees
6. Commissions and trading fees (depends on the firm that clears trades which the adviser makes on behalf of the fund). In many cases, this category of fees are undisclosed. They are often substantial, in some cases exceeding the sum of all other fees incurred.

Click on the independent articles below to read about how some mutual funds waste their client’s assets on excessive fees.

Barron’s article: Invisible Fund Expenses
Forbes article: Hidden Expenses
The Skilled Investor article: Beware of large and hidden mutual fund costs

The typical Hedge Fund will charge you as follows:

1. Management fee: 1-2%
2. Performance fee: 20 – 40% of profits!!!
3. Commissions and trading fees: same as mutual funds (see articles above). Can range from 0.5% to 7% or more of your assets annually.

So with a hedge fund, you not only incur most or all of the fees of traditional mutual funds, but you also get to give away 20 – 40% of your profits, just in case the fund manager produces some!

It is no wonder that many mutual funds and hedge funds do not outperform the market indexes! Even if their portfolio selection system is a good one, a fund that charges excessive fees or that incurs excessive trading costs will usually under perform the market. 

Vetta Investments is completely transparent with regard to fees. You have access to daily, monthly, and yearly account statements through our independent custodian, Interactive Brokers. These statements fully disclose all fees, including trading commissions.