Mutual fund fees
What are the fees associated with buying a mutual fund?
When investing in mutual funds, there are certain fees that investors should expect to pay. Fees can vary greatly, depending on which funds you buy, how you buy them, and what accounts you hold them in. Therefore, it is recommended that you speak with your financial advisor to determine which option is best for you.
What are the sales charges?
You may have to pay a sales charge when you buy a mutual fund. Sales charges are known as “loads”, and different types of loads can be offered with different mutual funds. There are four main types of sales charge options; your advisor can help you select the option that is best for you. The four different types of sales charges include:
1. Front-end load or initial sales charge (ISC). In some cases you are charged a fee at the time of purchase. The fee is calculated based on the amount you are investing in the fund, and is paid to your financial advisor’s firm. You can negotiate this fee with your financial advisor.
2. Back-end load or deferred sales charge (DSC). This is a type of fee charged instead of the initial sales charge. In some cases you are charged a fee when you sell your units or shares before a specified date. The longer you hold the fund, the more this fee declines. If you hold the fund long enough (usually between five and seven years), you will not have to pay a fee when you sell. You may also be able to withdraw some of your money (approximately 10%) each year without having to pay a fee. Any deferred sales charge you pay goes to the mutual fund company; this is because your financial advisor’s firm receives a commission up front from the mutual fund company when you buy the fund.
3. Low load or low sales charge (LSC). Similar to a deferred sales charge, there are no fees charged at the time of purchase for low load funds. The deferred sales charge is a lower set rate. It is deducted from the amount you redeem. You will not usually have to pay a redemption fee if you hold your units or shares for a minimum of three years.
4. No load. Funds with no load do not charge a fee when you buy or sell units or shares. However, this does not necessarily mean this fund will be less expensive for you. Like all funds, you must compare the MER and performance of each fund before you make a decision.
Note: If you have a fee-based account, you do not pay a sales charge when you buy and sell funds. Instead, you pay a single fee each year to your financial advisor. You can negotiate this fee, which is often based on a percentage of the total assets your advisor manages for you. Therefore, you do not pay a sales charge since you are already paying an annual fee.
What are management fees and operating expenses (MERs)?
Management expense ratios (MERs) are fees that are made up of management fees, operating fees and commissions (where applicable). Management fees are the costs associated with professionally managing the fund, while operating fees include the fund’s day-to-day operating expenses. These fees are paid by the fund, and are expressed as an annual percentage of the fund’s total value.
To learn more, speak to your financial advisor or call Sentry Client Services at 1-888-698-5553.