The relationship between mutual fund fees and expenses and their effects on performance

Fees charged by mutual funds include front‐end load charges, deferred sales charges that decrease over time, redemption fees that are imposed whenever shares are sold, and 12b‐1 fees. Fees may be justified if they allow the fund to lower other costs or improve performance. In this paper, we find that, on average, 12b‐1 fees, deferred sales charges, and redemption fees increase expenses whereas funds with front‐end loads generally have lower expenses. We also find that funds with 12b‐1 fees and redemption fees, on average, earn higher risk adjusted returns but funds with front‐end load charges earn lower risk adjusted returns.