When determining which mutual fund to invest in the return of the fund is only part of the picture.  The costs of running the fund such as legal fees, advisor costs, management fees, 12b-1 distribution fees come directly from the assets of the fund and lower the overall return.  These costs altogether are called the expense ratio and should be a major factor in your investment decision.

 

The higher the expense ratio of a fund the less return is passed on to the investors.  While not a large cost, over time the expense ratio can take a healthy bite out of your investment pie.

 

The average expense ratio of a fund varies from about 1.0% to 1.5%.  An actively managed fund has an expense ratio of about 1.5%.  When shopping for a fund, compare the expense ratios of similar types of funds.  The funds with the lower expense ratios are being run more efficiently and will be the better fund.