Explain briefly the following: (ii) Mutual fund costs

Mutual Fund Costs There are two broad categories of mutual fund costs, namely - (a) Operating expenses (b) Sales charges. These terms are explained below: (a) Operating Expenses: Costs incurred in operating mutual funds include advisory fees paid to investment managers, custodial fees, audit fees, transfer agent fees, trustee fees, agents' commission etc. The break-up of these expenses is required to be reported in the schemes offer document. When the operating expenses are divided by the average net asset, the expense ratio is arrived at. (b) Sales Charges: These are otherwise called as sales loads and are charged directly to the investors. Mutual funds use the sales loads for payment of agent's commission and expenses for distribution and marketing.