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What are the costs of fund investing?

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The price at which investment fund shares are sold to the public is its public offering price (POP).  For mutual funds, it includes the front-end sales charge plus the net asset value (NAV).  Investors in investment funds commonly pay a brokerage commission whenever buying and selling their shares through brokers.

Shareholder fees are those charges investors pay for buying and redeeming shares or with respect to their account:

  • Sales charge – A "front-end load" paid by investors in mutual funds to brokers when buying shares, it reducing the net amount remaining to be invested in the fund.
  • Purchase fee – The fee charged and paid by investors directly into the fund when buying mutual fund shares.
  • Deferred sales charge (DSC) – A "back-end load" typically paid investors to brokers when selling or redeeming fund shares.  Most commonly in the form of a contingent deferred sales charge (CDSC), the amount depends on how long the investor holds the shares and commonly decreases to zero after a specified time period.
  • Redemption fee – The fee paid by investors directly into the fund when redeeming their fund shares, usually within a certain time period from the purchase date – capped by the US SEC at 2%.
  • Exchange fee – A fee charged when investors exchange their fund investment with another fund within the same fund group or family of funds.
  • Account fee – An amount charged investors for the maintenance of accounts with mutual funds, commonly when the account value falls below a certain amount.
Front-End Load Schedule (Example)
$0.00 - $49,999.00 5.75%
$50,000.00 - $99,999.00 4.50%
$100,000.00 - $249,999.00 3.50%
$250,000.00 - $499,999.00 2.50%
$500,000.00 - $3,999,999.00 0.00%
$4,000,000.00 - $999,999,998.99 0.00%

Other fees and costs that can be incurred when buying ETFs and closed-end funds include:

  • Brokerage commission – Paid by investors to brokers with each purchase or sale of shares.
  • Bid-ask spread – The difference between the bid price a broker-dealer is prepared to pay for and the lowest ask price at which the BD will sell the shares.
  • Premium (discount) to net asset value – When the shares are trading at a price higher (lower) than their NAV in reaction to the market supply and demand.

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