These expenses are passed on to the investors. Actively traded funds experience higher expenses, which will reduce their returns. They may also charge exchange fees if you transfer money from one fund to another within the same fund family. Remember that all of these fees can add up and reduce the returns you receive from your investment. The total return of a mutual fund is derived from several sources.
Mutual funds pay their holders dividends from the earnings of the stocks, bonds, etc. in the fund.
Dividends from a mutual fund are your percentage of earnings from the company who distributed the stock to shareholders. You can receive dividends as cash or you can reinvest them into the fund. Many funds will automatically reinvest your dividends if you have given them authorization. Any dividends will be taxed as though they were ordinary income, unless they come from a return of capital, a tax-free municipal bond fund, or are part of a retirement account. Another source of potential income in mutual funds is capital gains .