A Supreme Court ruling this week about 401(k) plans makes it all the more important for individual investors to understand the fees associated with mutual funds.

The case was brought on behalf of employees of Edison International, a California-based energy holding company. The suit argued that Edison’s 401(k) plan offered employees mutual funds that had excessive fees. More specifically, it claimed that the company could have offered lower-cost “institutional class” shares of the same funds that it did offer and failed to live up to its responsibility to do so.

While the court's ruling mostly had to do with whether Edison workers have the right to sue their employer over the issue (it said they do), the court also said plan administrators have a responsibility to monitor investment options in their plan and remove "imprudent" ones. It then left it to lower courts to sort out the specifics. Analysts believe the ruling will put extra pressure on retirement plan administrators to consider what investment options are truly in the best interest of participants.

While discussions of various classes of mutual funds and fund fees may make your eyes glaze and prompt spells of frequent yawning, hang with me for a few more paragraphs.

To be an informed, successful mutual fund investor, it helps to have a working knowledge of four types of mutual fund fees.

Class distinctions. As I said, the case before the Supreme Court centered on institutional class mutual funds. Many mutual funds are offered in different share classes. The design and strategy of the fund is the same across all classes; what differs are the minimum required investment amounts and the fees charged.

Vanguard, for example, offers three classes of an S&P 500 fund, each one designed to mimic the performance of the S&P 500 index. VFINX is the “Investor Shares” class, requiring $3,000 to invest and charging a .17% expense ratio (for every $1,000 invested, $1.70 covers the fund’s operating and marketing costs). VFIAX is the “Admiral Shares” class (in essence, the institutional class), requiring $10,000 to invest and charging a .05% expense ratio. VOO is an exchange-traded fund version that can be purchased one share at a time and charging a .05% expense ratio.

If you participate in a 401(k) plan where you work, ask your plan administrator whether they have done all they can to make institutional class shares available.

Expense ratios. This fee, as mentioned above, covers a fund’s operating and marketing costs (sometimes an additional “12-b-1” fee is charged to help cover additional marketing costs). It is the most common fee charged by mutual funds and here are some key points that fund investors need to understand.

First, many articles about this type of fee give the impression that lower fee funds are inherently better than higher fee funds. That’s like saying the least expensive shoe at a shoe store is an inherently better value than a more expensive shoe. Quality and performance can easily trump cost.

Even worse, articles on this topic can lead people to believe some mysterious siphoning of their money is taking place—that a portion of the hard-earned money they invest in their workplace plan is being skimmed off the top without their permission or awareness. That is simply not the case.

A fund's expense ratio (including any 12-b-1 fees) is clearly stated on the prospectus and has already been factored in when its performance number is published. If a fund's published return for a given year is 8%, investors haven't earned 8% minus the expense ratio; they've earned 8%.

If two funds are identical in strategy, then sure, opt for the one with the lower expense ratio. Otherwise, performance is the fairer way to compare funds.

Sales loads. This is a commission paid to mutual fund sales people or financial advisors. While we only use no-load funds in our strategies, and if you're going to use an advisor, we generally recommend fee-only planners, we also recognize there are many good advisors that get paid for their advice by earning commissions.

Transaction costs. When buying and selling funds, sometimes there are fees to be paid and sometimes there aren’t. The designation “NTF” is one you should be familiar with. It means no transaction fee. With SMI’s strategies, many recommended funds are NTF funds. Still, sometimes paying a transaction fee to get the best fund isn't a bad idea.

If you are investing through a workplace plan, find out what, if any, transaction fees are charged when you buy or sell funds.

Bottom line? When investing with mutual funds, fees do matter. If you can keep fees down without compromising performance, by all means do so. However, especially when it comes to the expense ratio, don’t automatically assume that a lower ratio is better, and remember that published performance numbers have already accounted for these fees.