Take the 2-minute tour ×
Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It's 100% free, no registration required.

Regarding investing in mutual funds: How much does it cost to buy mutual funds? Where can I find about about the charges?

share|improve this question
    
I assume this means the commissions and not the actual price of a unit of the fund. –  Zephyr Nov 23 '09 at 18:13

2 Answers 2

up vote 3 down vote accepted

To add to ChrisH's response: In addition to front end load and back end load, there are also fund expenses for trading, management, administration, etc. These expenses are rolled up and reported as the fund's Management Expense Ratio (MER).

Furthermore, there are also funds that are sold on a No Load basis, which means you don't pay either a front or back end load type of commission. However, MERs are always present. Funds may also pay trailer fees to the advisors that sell them. These are small commission amounts paid each year.

All of these fees add up and can consume a significant portion of your expected investment return. For instance, if the fees total 2% per annum and you expect to earn 8% per annum, then 25% of your expected returns are going to fees. (Most people only consider the 2% and think that's small; it isn't, when expressed in terms of your returns!)

Prefer no-load funds with low MERs. Funds with loads and higher fees don't outperform the market. Do your own research to convince yourself of this.

Finally – you can usually look up the fees for a fund in its simplified prospectus. Don't buy a fund without understanding what it invests in, how it is managed, and what fees are charged for buying, holding, and selling it.

share|improve this answer

Typically for mutual funds the two main types are front end load and back end load.

Front End Load: The commission is charged up front and generally reduces the overall investment.

Back End Load: There is a defined period in which a sale of a unit of the fund will incur a commission fee. The fee is usually a percentage of the unit price. This will usually decrease over time until a holding period is reached at which time the commission becomes zero.

If you have access to a Financial Planner it's best to start by asking them how this works. Usually it is different from fund to fund.

share|improve this answer

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.