These expenses can be a very important consideration when investing client's portfolios in investment grade funds. Total expenses can easily exceed 100 basis points annually for fixed income mutual funds. The net result is an ongoing drag on an asset class in which every basis point of return is vital. Depending on how active the management of the fund is determines the impact of trading costs on performance. To put it another way, we would assert this is a significant reason why over ninety percent of investment grade mutual funds fall short of their respective indices.
Bonds are generally simple.
You purchase a bond in the market and hold it until maturity. No ongoing fees acting to drag down yield. The point of this article is not to degrade the mutual fund industry. We understand that there is a place for mutual funds and there are many advantages to using them as investment vehicles. Small Investors - Mutual funds tend to work best for investors that do not have the sufficient mass in their portfolios to attain the necessary diversification as to issuer and maturity.