Mutual fund companies charge fees to cover the cost of managing your money. But they don't bill you directly. When your account statement shows you your return, what you see is what the fund made after costs.

Top three costs for mutual funds

1. Management and operating expenses (MER). The MER shows the management fees and expenses paid by the fund as a percentage of the total value of all of the assets (both cash and investments) held by the fund. The mutual fund company calculates the MER and pays it out of the money the fund makes to cover the expenses. The costs include fees for the financial experts who invest your money for you, marketing, accounting, record keeping, and legal advice. MERs can range from less than 1% of the total value of the fund's assets, to more than 3%. These fees are not included in the commissions you pay when you buy or sell the fund. Also, the MER is charged whether or not the fund does well, even if it is going down in value. The Investor Education Fund's can help you better understand and compare the MERs of specific mutual funds.
2. Loads, which are the fees you pay when you buy and sell units of a fund. There are front-end loads, back-end loads and no load funds. Each fund has a series letter that tells you about these fees and how they are structured.
3. Trailer fees, which are fees paid to mutual fund dealers. Each year you hold the fund, the dealer will receive these fees or they may pass them on to your individual adviser. These fees pay for the service the adviser provides you, the mutual fund buyer.

Check the MER before choosing a mutual fund. Some funds that charge higher MERs may be worth it. It depends on the overall performance of the fund after the MERs have been subtracted. In rare cases, a higher MER may be compensated for with higher returns -- however there is no correlation to suggest that this generally is the case. Be very aware of the costs of owning a fund because every extra percent of MER is a percent less return. Also look for ways to negotiate lower costs. All fees should be described for you in the prospectus for the fund.

Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.