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I have been reading about mutual funds fees and charges. I have noticed that these fees are expressed as rates (%). I would like to ask if I have understood over which quantities are these rates applied to get the net fee/charge value. Are the affirmations below correct?

The fund's ongoing charge: This is a fee the investor pays yearly. To get the net value of the fee, you need to apply the rate over the total value of your investments + any cash your have in your financial company's account. For instance, if this fee is 0.2%, you have $10000 invested in one fund and $5000 in cash, the fee net value will be 0.2% of 15000 = 30. The fee refers to the yearly costs, but it might be divided in several payments across the year.

Account fee: This is not related to any fund in particular, but to the investment firm itself. You need to pay this fee to have an account opened with them, as some banks do. This fee is calculated over the current net value of your investments + any cash, exactly the same as above. E.g. if the account fee is 0.15%, added to the above, the total fee would be 0.35%. If at the end of the year the investor has the above 15000 in investments+cash, the fee would be 0.35% of 15000 = 52.5

Trading costs: These are the costs incurred by the fund manager in buying/selling the fund's underlying assets, in order to achieve whatever goal/strategy the fund has. This is not a fixed rate that can be predicted, so you won't find it in the fund's prospectus (you might find an estimation).

Front-end loads: A fee you pay each time you buy fund's participations. This rate is calculated over the amount you are investing, not over the net value of your investment. In other words, following the above example, if the investor invests another $500 in the fund, the fee (say, 2%) will be applied to only this $500, so 2% of 500 = 10.

Back-end loads: A fee you pay when you sell fund's participations. As above, this fee is applied over the amount you are selling, not over your whole investment. E.g. having $15000 invested in a fund, if the investor sells assets worth of $1000, the fee would be applied only over those $1000.

This is, of course, without telling anything about taxes.

Is the above correct? Am I missing other fees?

EDIT

I have investigated a bit more and I have found this:

Amundi S&P 500 Index fund

It has a fee I didn't consider:

Conversion fee: It seems to be a commission that might apply when you buy a fund in a currency other than its underlying asset's one. In the above example, it is 1%. Over which quantity is this 1% applied?

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  • Are the text of these definitions your own words, or did you copy and paste them from somewhere else? – Ben Miller - Remember Monica Apr 28 '20 at 15:56
  • My own words, that's the problem. I want to confirm that I have understood it correctly. – Martel Apr 28 '20 at 15:59
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The fund's ongoing charge is not described correctly. A fund will only charge you a fee for money in the fund, not cash outside of it. What you may be thinking off is the expense ratio, which is expressed as a percentage of current value of money invested in the fund. For example, $1,000 invested in fund X with annual net expense ratio of 0.5%, you will pay 1,000 x 0.005 = $5 over the entire year. Although, you wouldn't always "see" the fee as it is usually deducted directly from the fund returns behind the scenes.

@Dilip Sarwate further clarifies that the ER is technically levied on the Net Asset Value (NAV) of the investment. So if your $1,000 grows or shrinks you pay the ER based on those numbers, not your initial investment amount (cost basis).

What you describe as the account fee is correct. FYI, if you are in the U.S. and you're paying account fees on a regular brokerage account you need a new broker. Many (if not most) brokers offer fee-free accounts.

To clarify, you have $15,000 in an account, $10,000 of which is invested in fund X and $5,000 is held in cash. The account fee would be levied on $15,000, but the expense ratio for fund X would only apply to the $10,000.

Trading costs is really only applicable to actively-managed funds. But, you are correct. These fees could vary by quite a bit. This is one of the reasons that these type of funds are worse than index investing for the long-term.

Your description of front and back-end loads is correct. Note that these fees are usually only seen on actively-managed funds. I have never seen an index fund that uses loads, but I'm sure they exist.

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    +1 The expense ratio is charged on the NAV and not on the amount "invested" in the fund. If that $10,000 originally invested in the fund is worth $11,000 right now, the charge applies to $11,000 and not to $10,000. But you are perfectly correct when you say that these fees are never explicitly charged as cash taken out of the shareholder's investment but instead the NAV is reduced and so the shareholder doesn't "see" any effect on his investment in what the fund is reporting as transactions on his account. – Dilip Sarwate Apr 28 '20 at 19:06
  • @DilipSarwate You are correct and give a good explanation. Updated my answer. – Nosjack Apr 28 '20 at 19:15

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