Performance fees are meant as an incentive, and while they are common among hedge funds, an overwhelming number of mutual fund companies have been steering clear of them. Citing figures from Strategic Insight, MarketWatch says just 200 of out of more than 4,000 stock funds, representing 10% of the $7 trillion industry, have introduced such fees. Part of the problem, said Avi Nachmany, director of research at Strategic Insight, in a MarketWatch interview, is that mutual fund companies are cautious about overcharging and the penalties associated with that.

Some firms have paid hefty fines after the Securities and Exchange Commission found that they had charged excessive fees, which can occur because the fees are based on past performance, and investors can end up paying fees that are too high, if present performance would suggest lower fees. 
 
Janus Capital, which recently introduced performance-based fees for some of its mutual funds, says MarketWatch, avoids this problem by basing fees on a rolling three-year history, similar to a formula used by longtime performance-fee charger Fidelity Investments.