Do you know the real cost of purchasing and owning a mutual fund? It is hard to figure out, even when you are truly conscientious in reading all of the fine print in the investment materials. Part of the information problem is the lower level of detail on offshore mutual fund reports, particularly compared to the United States reporting standards.All mutual funds (in the US) must issue a prospectus, which is a explanatory narrative (much more than a fact sheet) that tells you everything about the mutual fund structure, investment policy, managers, board of directors, auditors, attorneys, asset allocations, administrative costs, sales commissions, risk in capital markets, kinds of assets, and so on. What the prospectus may not do not do is compute for you the real after-fees cost of owning a mutual fund for say, one year, three years, five years, ten years.At this point, readers may think this article is irrelevant to their situation, but do you have any idea what the fees charged are in your pension funds? After all, they are mutual funds, aren’t they? Pension funds also have to be audited.Do you know who picks up the tab for that cost: the pension administrator, or you, the investor?Make no mistake, there are costs attached to funds: among them are transaction fees, portfolio management fees, administration and custody fees, commission fees, premature withdrawal fees, and for some hedge-fund types, performance fees (also known as high-watermark fees).The fund sale commission remunerates the mutual fund salesperson, who works with you to place your savings into a particular fund. That payment (commission) can range anywhere from one to seven percent of your investment. Your financial representative may work on straight commission, salary and commission, or, salary and bonus based on number of mutual fund salesPortfolio management fees pay for experienced qualified investment professionals who manage the fund within the guidelines of the investment policy. A high-grade bond fund, for instance, will have a stated investment policy that limits the types of bond asset holdings to high credit quality ratings of single A through triple AAA grades. It won’t be able to call itself a high-grade bond fund if the managers go off tangent by buying high-yield junk bonds from a completely politically unstable third-world country.Why bother with these names, you think. Well, if you’d bought that bond fund for great safety, very low market risk, low volatility, only to find out the values were rotating back and forth like a yoyo, you’d be pretty upset, would you not? You expect to get what you thought you’d bought, especially if you’ve taken on great risk in some other investment.Experienced mutual fund managers will use every single bit of his/her investment acumen and knowledge of capital markets to bring in a decent return, thereby appreciating your asset and earning their fees. And you do want experience and consistency, not a mutual fund manager fresh out of an MBA programme or a fund that has seen lots of investment manager turnover.Mutual fund criteria embrace this concept and it is used to judge the overall viability of a fund by investment information services, such as Morningstar and YahooFinance.How do sales commissions and fees affect a mutual fund? In many instances, fees are a real drag on investment performance, especially if the mutual fund manager falls down on the job, or the job falls on him/her because the market fell apart. It still costs the same to run the money, but the performance values have dropped. Fees take an even bigger chunk off the lower value.But there have to be some fees; no one, particularly in the investment world, is there to help you, the small investor, because they like you, or because you think it is free. There are fees, not always easy to find, the trick is to find a high performance mutual fund that charges competitive ones.Consider this example. Pick up two mutual fund fact sheets, different brands, or from different investment houses. Make sure that they are the same type, say global large cap value. Now:- Compare how a hypothetical $10,000 invested in each of these funds returned performance over one, three, five and ten years.- Next look at the fees that are charged annually for the fund.- Then, be sure to note if the performance is quoted net, or gross of these fees.Theoretically, if the funds are relatively the same type of large cal value stocks, and the fees are the same, the performance will be about the same. Note, I said theoretically.However, if one mutual fund company charges less (read more competitively priced fees), the performance may be higher (and the losses in loss years may be less).Can you figure this out for just about any fund? Yes, if you have all the information but not all mutual funds, and pension funds provide a list of all the fees that are charged.When fund fact sheets throw in gross of fees, or net of fees, it is hard to compare, and can be misleading, not to mention downright annoying when you don’t know what the fees are, or how to do the maths correctly.Mutual funds are still in for the long haul. In spite of the huge popularity of exchange-trade funds, currency trading, and other interesting investments, mutual funds are still a huge, huge market and a global choice for pension administrations, small investors, and others.You should really pay attention to how well your mutual funds are performing. And you should know before you purchase what all of the fees will do to the performance.Stay tuned to next article on how to pick apart a mutual fund and its components. Be an informed consumer and be wise with your money.Good sources of informationhttp://investor.gov/ and many other terrific investment hints and information at offered at The United States Securities and Exchange Commission. You don’t have to be a US investor to use the site.Charles Schwab has an offshore mutual fund comparison section that can be a useful tool at http://www.schwab-global.com/public/schwab-gcb-en/investment_choices/offshore_mutual_funds?cmsid=P-955859&lvl1=investment_choices&lvl2=offshore_mutual_fundsMartha Myron, CPA CFP(US) TEP JP www.marthamyron.com is an international Certified Financial Planner specialising in international tax, estate, and retirement strategies for Bermuda residents with US connections, and US citizens living and working abroad. Member of the American Citizens Abroad Tax Advisory Council. www.americansabroad.org Contact mmyron@patterson-partners.com or 296-3528 at Patterson Partners Ltd.