|
With some mutual funds, you will pay a sales charge. Generally, a mutual fund you invest in through a broker will have a sales charge known as a load. A fund with no sales charge is called a no-load fund.
There are several types of loads:
- Front-end load – A front-end load is a sales fee charged when you first invest, typically 4 or 5 percent. If you invest $100 and the front-end load is 5 percent, $95 goes into your investment. Class A shares is another name for mutual funds that have a front-end load.
- Back-end load – A back-end load or deferred sales charge is calculated in different ways. For example, the fee may be reduced gradually each year that you hold the fund. If you hold onto your shares long enough, you might owe no fee at all. Funds with back-end loads are usually called Class B shares.
- Level load – Funds with level loads charge an annual sales fee. These funds are referred to as Class C shares.
- True no-load funds have no front-end or back-end load.
Many mutual funds, including some no-load funds, charge 12b-1 fees. These fees are separate from sales charges. 12b-1 fees represent a charge for marketing expenses and distribution. Generally, 12b-1 fees are used to compensate the broker who sold you the fund.
Expense Ratios
All mutual funds have expenses, and you should compare them before investing in a mutual fund. The expense ratio is the ratio of expenses to assets. A lower expense ratio means you will keep more of the return on your investment. A very helpful tool is the NASD Mutual Fund Expense Analyzer.
Expenses make a big difference. You’ll have almost $20,000 more in 20 years if you invest $25,000 in a fund with a 0.3 percent expense ratio versus one that has a 1.3 percent expense ratio, assuming an 8 percent return and all other factors being equal.
Types of Funds >> |
