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Consider a mutual fund with a 5.75% load fee. However, there is a contingent reduction in that fee to 5% if you intend to invest $25,000 with the fund company over a 20-month period. You select to dollar-cost-average your contribution in over 10 months. The purchases are done by buying the shares at a mark-up:

3/2009: NAV $9.50, Sales Price $10.00, 100 Shares, $50 fee, $1000 total.
4/2009: NAV $9.50, Sales Price $10.00, 100 Shares, $50 fee, $1000 total.

And so on until $10,000 had been paid, $9,500 in shares and and $500 in fees. For simplicity's sake, we now have 1000 shares. The cost basis is $10,000 excluding dividends. 20 months later, however, the $25,000 minimum hasn't been met so they extract the remaining fee of $75:

11/2010: NAV $15.00, -5.00 shares, -$75 total.

It's now years later and it's time to sell and the decision is what cost basis method to use. If I use average, it's easy. My cost basis is still $10,000 but I have fewer shares as a result of the fee. How does it work with FIFO? Do I subtract the shares from the first lot I bought? Spread it out over the 10 purchases? Report it as a separate transaction?

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You prorate the fee across all the positions, since it applies to all of them.

  • Your answer got flagged for Low Quality :) – Dheer Mar 18 '14 at 11:25
  • Feel free to add and edit. – littleadv Mar 18 '14 at 17:01

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