There can be a front-end load fee. This is when you pay a fee when you invest in the fund. So if there is a 5% front-end sales load fee, then if you invest 10,000, the fund will automatically charge you 500 dollars, which is 5%.
Then there is the back-end load. This one can be a bit trickier because there are often exceptions based on various criteria. If you look at this fee table. You will see that there is no maximum deferred sales charge. but then they reference this #1 footnote. The footnote basically says if you invest over 1 million dollars, and sell within the first 12 months, they can charge you 1%. This illustrates the importance of reading the prospectus. Mutual funds are required to describe their fees in their prospectus, and every fund is different so make sure you read that. At least the fee section.
Now every now and again you might hear about a “no-load” fund. Generally, what they are referring to these front and back-end load fees. But I wouldn’t just accept a no-load fund as having “no fees in this top section. They may list fees like exchange fees, redemption fees, service fees and so on. So once again. Find the table for the mutual fund you are interested in. then read the details.
Now on to the operating fees.
First is the management fee. A management fee is fees paid out of the fund assets to the investment advisor for managing the fund. With this fund, the fee is 72 basis points. A basis point is one-hundredth of one percent. So 100 basis points is the same as 1%. So in this case, it's 72 basis points. For this one, its 15 basis points. And down here, you have 175 basis points or 1.75%
Distribution fee or a 12b-1 fee. 12b-1 fees are fees that are taken out of the fund’s assets to cover expenses to sell the fund. This fee can include compensation for brokers to sell the fund, paying for advertising, printing and mailing the prospectus I mentioned you should look at. As is true with all of these fees, you're aiming for these fees to be as low as possible.
Then we go down to the other expenses. This can be A lot of different things. Some popular fees in here are legal fees, custodial expenses and so on.
In summary, fees for mutual funds are impressively more complex than you might think. The tricky part to an explainer video like this one for mutual fund fees is that there is no hard and fast rule for fees. There is almost always an exception and every fund does it differently. My opinion, if I were looking to invest in a mutual fund, I would look for a no-load fund that has annual fund expenses as low as possible. I might be willing to pay a slightly higher fee if it was a strategy I wanted to be involved in. but for a basic fund, I would be looking at the total annual fund fees and I would be aiming for funds that don’t have a sales load fee.
If you have any questions or comments, post a comment and we will try to reply as soon as we can.
★☆★ Subscribe: ★☆★
Investing Basics Playlist
Investing Books I like:
The Intelligent Investor - https://amzn.to/2PVhfEL
Common Stocks & Uncommon Profits - https://amzn.to/2DAV8h9
Understanding Options - https://amzn.to/2T9gFSp
Little Book of Common Sense Investing - https://amzn.to/2DfFGG2
How to Value Exchange-Traded Funds - https://amzn.to/2PWSkRg
A Great Book on Building Wealth - https://amzn.to/2T8AKZ1
Dale Carnegie - https://amzn.to/2DDAk8w
Effective Speaking - https://amzn.to/2DBncAT
Equipment I Use:
Microphone - https://amzn.to/2T7JxL6
Video Editing Software - https://amzn.to/2RQM1vE
Thumbnail Editing Software - https://amzn.to/2qIUAgP
Laptop - https://amzn.to/2T4xA8Z
DISCLAIMER: I am not a financial advisor. These videos are for educational purposes only. Investing of any kind involves risk. Your investments are solely your responsibility. It is crucial that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments. Please consult your financial or tax professional prior to making an investment.
#LearnToInvest #StocksToWatch #StockMarket