I keep mixing up “expenses” and “shareholder fees” for open-end funds....

Some open-end funds impose a sales charge when the investor purchases shares. For example, an investment of $10,000 in a small-cap growth fund might involve a sales charge of 5%, or $500, meaning that only $9,500 is invested, with the rest going to the distributor of the fund and members of the sales network. Some funds charge a redemption fee if shares are sold back to the fund within a stated time frame—maybe 18 months.

These fees are charged one-time only and depend on the decisions of the individual investor, who can invest a larger amount and avoid short-term redemptions to reduce or even avoid the fees.

Many funds do not have sales charges, but all funds charge investors for their operating expenses. The management fee to the investment adviser is typically the largest annual expense for an open- or closed-end fund. Other expenses include legal and accounting services, transfer agent fees, custodian charges, and board of director salaries. These expenses are taken from the dividend and/or interest income generated by the portfolio, with the net income then distributed to shareholders in the form of dividends at a frequency determined by the fund’s Board of Directors.