Every mutual fund charges shareholders an annual fee, often called the expense ratio. This includes load funds, which are sold by brokers who charge a sales commission, and no-load funds, which are sold directly by fund companies without a commission. The annual fee is separate from loads or commissions.

From its annual fees, the fund company pays for investment management, overhead, advertising and other expenses. Whatever is left is the company’s profit. The annual fee is stated as a percentage of assets. If you have 10,000 in a fund with a 1.5 percent expense ratio, your fee will be $150 per year.

These fees are taken out of the fund’s assets. Its performance is stated net of these fees, so you’ll never see them broken out as a separate charge. If two funds had identical portfolios but different expense ratios, the one with lower fees would post better performance. Over a long period of time, high fees can have a substantial impact on performance.

The average expense ratio for all mutual funds is around 1.2 to 1.3 percent. Stock funds tend to have higher ratios; international stock funds higher still. Bond fund expense ratios tend to be lower than average, money market funds even lower. Index funds usually have very low expense ratios, generally ranging for 0.10 to 0.5 percent per year depending on the type of fund.

To see the impact of fees and commissions, go to http://www.smartmoney.com/licensing/funds/fundfeeanalyzer.html.