There are three ways a
mutual fund company can charge you, the investor. There is either a front-end sales charge, a
surrender fee and there is always a management fee.
The easiest to explain is
the management fee. This is a fee that
financial institutions charge to do the actual buying and selling of the stocks
and or bonds in your portfolio. There is
a vast range as the lowest usually runs about.35% to some as high as 2.5%. So be careful to read and ask what the
management fees cost.
Next you have UP FRONT (front-end)
sales charges. There are a variety of
these charges and are actually given share class letters. For example, a fund could have “A” class or “T”
class or some even an “I” class. These
fees range as high as 5.75% to as low as 3.5% or 2.0%. So examine the different share classes.
Last there are surrender
fees. One basic principal is that if you
pay a front-end sales charge, you would not be subject to a surrender fee. Generally speaking the surrender fees run
only 1% and then they are withdrawn after usually one year.
Does it make sense to pay
a front-end charge? In some instances,
Yes. The reason being that many mutual
funds have a minimum investment of $1,000.
Other forms of investments have minimums as high as $10,000, and some
even as high as $200,000. So a mutual fund
with a sales charge could often make sense when you are first starting out.