- The expense ratio is a fund’s total annual operating expenses, shown as a percentage of assets. FINRA’s example: a fund at 0.75% versus one at 1.85% means the second must beat the first by more than a full percentage point to match it.
- A load is a sales charge paid when you buy or sell shares. A 12b-1 fee pays for marketing and distribution and is capped at 1% of your assets in the fund.
- ETFs trade like stocks, so you may pay a commission and a bid-ask spread, plus the expense ratio. FINRA says exchange-traded products do not have loads or 12b-1 fees.
- Index funds generally have lower operating costs than actively managed funds, though fees vary from fund to fund.
The expense ratio
FINRA calls the expense ratio a fund’s total annual fund operating expenses. It is the percentage of the fund’s assets that goes to recurring fees each year. FINRA’s example compares two funds at 0.75% and 1.85%.
| Expense ratio | Annual cost on $10,000 |
|---|---|
| 0.75% | $75 |
| 1.85% | $185 |
| Difference | $110 a year, before any difference in returns |
Loads and 12b-1 fees
FINRA describes loads as commissions paid when you buy or sell shares, calculated as a percentage of the investment. A front-end load is a commission you pay when you buy. A back-end load applies if you sell during a set period. A level load is collected every year you hold the fund. No-load funds have no sales charges but may have other fees. A 12b-1 fee is an ongoing charge for marketing, distribution and some shareholder services, capped at 1 percent of your assets in the fund.
Share classes
| Class | Typical fees |
|---|---|
| Class A | A front-end sales charge, often with breakpoint discounts for larger investments, and lower ongoing 12b-1 fees. |
| Class B | No front-end charge but a contingent deferred sales charge if sold within a set period, and higher 12b-1 fees. Most funds no longer offer them. |
| Class C | No front-end charge, a small charge if sold within about a year, and higher ongoing fees for as long as you hold the shares. |
| Transaction (clean) shares | No sales charges or 12b-1 fees, though a brokerage firm may still charge a commission. |
ETF costs
FINRA says an ETF is a pooled investment listed on an exchange, bought and sold throughout the trading day at prices that change with the market. Most track an index, and others are actively managed. The costs are different from a mutual fund’s:
- An expense ratio, calculated as a percentage of the assets invested. Actively managed funds often charge more than index-tracking funds.
- Commissions when you buy through a broker. Some platforms offer commission-free trading, but FINRA warns you to read the fine print for other costs.
- The bid-ask spread, the gap between the buyer’s and seller’s prices, which may be near zero for some products and much wider for others.
FINRA adds that exchange-traded products do not have loads or 12b-1 fees.
Index funds
FINRA describes index funds as passively managed funds that seek to replicate the performance of their benchmarks rather than beat them. They generally have lower operating costs than actively managed funds, though fees vary from fund to fund.
Comparing funds
FINRA points to its free Fund Analyzer, which compares expenses across up to three funds or across the share classes of one fund. You enter the amount you plan to invest and how long you expect to hold it, and it models how fees and discounts affect the investment over time.
Compare the expense ratio and any load before you buy, not after. If you are working with an adviser, our guide on how to check a financial advisor shows how to verify who you are dealing with.
Frequently asked questions
What is an expense ratio?
FINRA describes it as a fund’s total annual fund operating expenses, the percentage of assets that goes to recurring fees each year.
What is a 12b-1 fee?
It is an ongoing fee that pays for marketing, distribution and some shareholder services, capped at 1 percent of your assets in the fund, according to FINRA.
Do ETFs have sales loads?
FINRA says exchange-traded products do not have loads or 12b-1 fees. You may still pay an expense ratio, a commission when you buy and a bid-ask spread.
Are index funds cheaper than actively managed funds?
FINRA says index funds generally have lower operating costs than actively managed funds, though fees vary from fund to fund.
How can I compare fund costs?
FINRA’s Fund Analyzer compares expenses across up to three funds or across share classes of the same fund.
Sources
Each source was opened and read on October 26, 2026. See how we verify.