Before you purchase your next mutual fund make sure you take a look at the mutual fund turnover ratio. This ratio measures the annual turnover of the stocks inside a particular mutual fund. Recent numbers show the average domestic stock mutual fund turnover ratio sitting somewhere around 80-90%. This means that the average stock is being held less than 15 months by most mutual funds.

High mutual fund turnover ratios are concerning for several reasons. Number one they should concern you because they will make your fees much higher. Let’s be honest, it costs money to make trades and when a manager continues to churn stocks they won’t be the ones paying for it, you will be! Also remember, high mutual fund turnover ratios are going to be a problem come tax time. The inefficiency of churning stocks is seen not only at the individual level, but also at the mutual fund level. Also remember that if a manager is buying and selling a stock once every year or so it has to bring into question whether they really have a solid grip on what is going on. All investors should understand that predicting what will happen over the course of such a short period is very difficult to do, so why would mutual fund managers consistently take a gamble on what will happen over that period? It makes very little sense.

Not all mutual funds have high turnover ratios, and not all of the mutual funds with extremely low turnover ratios are the best funds out there, but you should definitely be wary of a fund with high annual turnover ratios. Avoid high turnover mutual funds since you will end up paying a lot more out of pocket and you likely won’t achieve great investment returns over the long run either.

Mutual fund fees and expenses are part of life, but in order to have your returns be as high as possible you need to do everything you can to minimize those fees. Fees and expenses can quickly eat away at some very attractive gains. What are some of the best ways to minimize fees and expenses from mutual funds?

Five Ways to lower mutual fund fees and expenses

1. Avoid loaded funds- This is the single most important thing you can do. Make sure you avoid loaded funds at all costs and simply go with the no load mutual funds. No load mutual funds are all over the place now, and they are just as successful at bringing in positive returns as loaded funds are, without the massive expenses.
2. Consider index funds- Index funds have much lower expense ratios than most other mutual funds because they are passively managed. Index funds are a great choice for investors who don’t want to have to follow their investments constantly or those who simply want to achieve an average market return with low fees and expenses.
3. Avoid high 12b-1 fees- These fees do nothing to help the investor, but rather they pad the pocket of the mutual fund  company. This fee is a marketing or distribution fee which charges investors so that the mutual fund company can promote their funds.
4. Avoid high turnover funds- In general a fund that has a high portfolio turnover ratio will have higher fees because they are paying quite a bit more in commissions because of all the trades they are placing. Finding a solid mutual fund with a low turnover ratio is a good idea.
5. Shop around for alternatives- This is clearly the most basic of the five ways to lower fees, but some investors don’t manage to do this. Simply look at mutual funds that have had similar performances and compare your overall fees before investing. If the mutual fund fees or expenses look too high, consider another option since there are so many available to you.

There are plenty of ways to lower your mutual fund expenses and fees, you simply need to be proactive.