Every mutual fund has annual expenses. The most obvious are fees paid to the fund's investment advisor, as well as marketing, advertising and distribution charges. Other fees include normal operating costs, such as office space, staff and equipment. Such expenses are not charged directly to a shareholder's account, but are deducted from the fund's assets. This means that there is less money for shareholder returns.
Lower expenses result in more money for shareholders over the long term.
You can find information about a fund's expenses in the condensed financial information of the prospectus or in the fund's annual report. Statistics from Lipper Analytical Services show the average no-load fund has an expense ratio of 1.32 percent. If you are considering a fund with a two percent expense ratio, which is quite common, look for that added expense to eat into your profits. For example, compare two funds. Fund A has a .05 percent annual expense and Fund B's annual expense is two percent.