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someone is you, the fund investor. You didn't think that owning a fund
was all peaches and cream? Worse yet, unlike stocks or bonds where you
pay a commission to get in or to get out, most funds have cost
structures with levels and layers that could get complicated to keep up
with. Most are spelled out in the prospectus but they could be pretty
intimidating if you are just used to paying straight commissions for
your stocks. With that in mind let's take a look at the various elements
of a fund's expenses:
Sales Loads - Sales loads or loads, as they are referred to, are
normally one-time fees that are charged when an investor buys into a
fund and are mainly charged in percentages. Loads are also referred to
as sales charges. They include:
Front-End Load - Also known as the initial sales charge, this is a fee
charged when an investor purchases shares in a fund. The price of these
funds are sometimes quoted as POP (Public Offering Price), which is
their NAVs plus their front-end loads per share. Front-end loads vary
depending on the fund and could range from 1% to 10% or more of the
total amount invested. So investing $10,000 in a fund with a 5% front-end
load would cost you an immediate $500 just to get in. Mutual funds
with front-end loads are also referred to as class A shares.
Back-End Load - Also known as the redemption fee, exit fee, or the
deferred load, this fee is charged when an investor cashes out of the
fund. It could also vary depending on the fund, perhaps between 1% to
10% or more on the amount taken out. Many funds that charge back-end
loads use a graduated approach. This means that the longer an
investor has held their fund shares, the less in percentage terms they pay
in back-end loads. This is designed to discourage investors from selling
their shares shortly after buying in - in other words, to encourage
them to be long-term investors. As investors sell their shares, the funds
must also reduce their holdings accordingly and this costs them money,
something they like to avoid. So, for example, a fund may charge a 5% …
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