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Low Fees in a Small Package

Despite their smaller asset bases, these highly rated funds have kept fees in check.

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Regular visitors to Morningstar.com are probably familiar by now with the idea of cost-conscious fund investing and why it's so important. To review, the amount a fund company charges investors to own shares of its fund--referred to as a fund's expense ratio, fees, or costs--is subtracted from fund returns. As a result, funds that charge low fees are able to pass on more of their total returns than those charging higher fees.

Funds with large asset bases often have a built-in advantage over their smaller peers when it comes to fees because economies of scale allow them to spread the cost of operating the fund more broadly. For example, whether a fund has an asset base of $5 billion or $50 billion it still must pay a manager and analysts to run the portfolio along with noninvestment expenses such as plan administration, customer support, marketing, and other costs related to running the business.

Adam Zoll does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.