I invested in two mutual funds that were recommended by my financial advisor, do they just get paid an initial one time fee or do they get paid on a reoccurring basis? I'm kind of confused about how this works. Richard K has the best answer.
Keep in mind...... Take a little time, read a few books & you'll save 10's of thousands of dollars by buying no-load Mutual Funds.
Learn Asset Allocation. Don't do "fad" investing. Don't take "tips".
The fact that you've purchased funds and don't understand the fee structure says some bad things about your advisor.
Be very wary. Depending on what type of class mutual fund it is they get paid a cetain amount up front and a trailing commission every yeat (although the trail is very small)
Clas B Shares - get paid up front but all your money is invested. The fund company pays them. however, you are required to stay in the fund a certain amount of years of you will be charged a Contigent deffered sales charge if you sell within a certain amount of years.
Class A shares - The fund family charges an upfront fee, which will be taken out of your purchase amount. However, class A shares have lower yearly expense fees. No CDSC
Class C Shares- Broker will get paid the least for this , any you will only have a 1 year CDSC, and the expense ratio is the same as "B" shares.
--this is just the basics There are several types of mutual fund fees and expenses. Management fees are investment management fees that are paid based on an annual percentage of assets under management but calculated daily in the calculation of the net asset value (NAV) of the fund. These are paid by all funds.
Some mutual funds receive a sales "load" or a sales charge that is collected at inception. For example, if a fund charges a 5% load and one is investing $10,000, only $9,500 is invested upfront and $500 compensates the advisor. Other funds may charge a deferred sales charge which is collected when the mutual fund is redeemed.
Other funds are no-load funds which charge only a management fee without the front-end or back-end load.
There can also be distribution or "service" fees known as 12b-1 fees. These fees are used to compensate brokers or to pay advertising or to create sales literature. These are limited to no more than 0.75% of assets under management.
Generally, it is best to avoid paying a load, stick to no-load funds, and check out the management fee. This does vary considerably across various funds.
Good luck. Hope this helps. It depends on the kind of share you purchase
A Shares are charged a front load, meaning you will pay the charge up front for example Fund A has a sales charge starting from 3.50% and drops to .50% depending on how much you invest usually 50K below 3.50/250K 3.00% and so on. After 1M the charge is usually .50%.(these rates are for example only)
B Shares are back end load, you will have a fixed rate but every year, for seven years, the rate drops and you only pay when you sell the shares, after the time is up, it starts again- y1- 3.50%/y2- 3.50%/y3.00%, and so on until the last year has no charge.
C Shares are for the little guy who doesn't plan on investing much, no front load but the highest 12b-1 fees and no voting rights(believe it or not they have critical moments like now with Bear Sterns)
Also note that fees can be reduced if buying from the same fund family. You may also provide a letter of intent to purchase more within a period of time to have a reduced fee- you invest 750K today and commit to a 1M investment, we charge you for the 1M investment charge but if the funds are not here by the end of the term, you pay back the fees since you did not hold your end.
I recommend you purchase within a managed account, your fees will be based on your entire relationship including mfs, stocks, bonds, munis, cash, and retirement(depending on which retirement type). The fees are annual and much less than buying individual funds Some funds have an initial entry charge (called load), some have an exit charge and some have none. But they all have an on going annual charge of about 1% which has a tremendous effect on the share taken by the fund manager, over the long term.
Eg after 40 years such fund will take about 33% of the fund, plus any initial percentage. A fund with 3% initial charge and1.5% annual charge, will take 47% and some funds charge even more.
It is very negligent, or even suspicious, of your adviser not to tell you, and you should complain to him vigorously. In fact I would also change him. Here is a nice educational tool:
http://finance.yahoo.com/funds/how_to_ch... |
