How do mutual funds collect expenses from their investors?

The management expenses don't show up on your statement. Are they built into the fund's share price?

You are correct. The NAV (Net Asset Value) of each share of the fund reflects the expenses they have already subtracted.

At the end of each trading day, the manager adds up the current value of all the stocks in the portfolio (the assets) and then subtracts the costs/expenses. The remaining amount is called the net assets (or "equity). Then, this net asset amount is divided by the total number of outstanding mutual fund shares, giving you the NAV of each share.

The mutual fund reports the expense as an annual percentage of your assets. However, the actual expenses are spread out over the entire year, reflected in the NAV of a fund each trading day.

Funds also make money from you by charging a load (or commission) when you buy or sell shares. I suggest you avoid funds that are sold with a load or a 12b-1 fee (which is kinda similar to a load but is charged all-year round).

Chapter 19 of my free book at http://www.invest-for-retirement.com talks about the costs of funds and how cost make a huge difference in the long run.

Usually at the end of the year, when the funds distribute cap gains/dividends,you end up with a few more shares...but at the same time,the management will take their fee, and you will " lose" a share or two (or maybe just part of a share)
..or whenever you sell ALL shares in a fund, a fee will also be deducted.
If you are in a fairly decent fund and you're making good returns, the fees are barely noticeable. Of course if your in a loser, it feels like they're squeezing a turnip.

They are built in to the fund's return.

The expenses are paid daily by the fund everyday (the annual expense ratio divided by number of days in the year multiplied by the value of the fund). After the value of the fund is calculated, the fund will automatically deduct the expense, and that is how they get the NAV of the fund.

1.If you buy a fund from a broker you may be charged a commission or you may buy Class B shares which will charge you a fee if you redeem during the first 5 or more years. You will see those charges. Also class B shares have higher expenses than other shares.

2.On an ongoing basis the fund has expenses involved in running the fund and they charge a management fee that is a percentage of the assets and reduces the total return. Some funds charge 1.5% and others 0.10%. You won't see these on your statement but they are somewhere in the fund's prospectus. Much of the difference is due to the degree of greed not real differences in cost structure.

3. Finally, (I think) funds pay commissions on their trades. Some funds are very active and others like index funds don't trade so much. The average is supposed to add about 0.80% to the funds cost. This is not included in the management fee - you need to be a detective to figure it out.

So, if you have an active and greedy fund you could be paying more than 2% of your assets to them. This is addition to any commissions to your broker. What this means is if the fund earned 10% you will only get 8%.