hr: Money

When you invest in mutual funds, you pay a fee to the fund manager to actively manager your investments so that they are able to ‘beat’ the market. If not that, then they must provide you with some other benefit that you can’t get otherwise, like stability, or a chance at crazy returns.

Photo Credit: Jake the Linux Geek

Most mutual fund managers try and maintain some portion of your assets that reflect the diversity of the stock market, and use another portion to try and aggressively get higher returns.

Ross Miller is a risk consultant, and former Finance Professor at Boston University. According to him, it is quite possible for you to end up paying upto 10 times more than what you need to pay for managing your funds.

Many people are afraid of getting lower returns that the stock market index, and so, invest their funds in more or less the same companies that make up the various indexes. If your fund manager is doing this, then there is no point in paying him any extra money for that. You want to pay your manager a fee only if he’s actively looking to make your funds outperform the market.

So the next time you invest your money, make sure that you know how your fund is being managed before you pay heft management fees.