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Mutual Funds 101: The costs associated with mutual funds.

Front end. Back end. Low load. No load. What do they all mean?

It might sound like we’re describing a school bus, but alas, no. These are all terms associated with types of mutual fund fees.

How aware are you when it comes to the costs associated with mutual funds?

If you’re not too sure, don’t feel bad—because according to, two thirds of Canadian investors surveyed about their investments were also unaware of how much they paid in annual fees.

Considering this is your money we’re talking about, don’t you think you owe it to yourself to understand any and all fees you’re paying on your investments?

At Educators Financial Group, for example, the costs associated with mutual funds are clearly listed in the funds’ corresponding client documents entitled a Fund Fact Sheet and Simplified Prospectus. Documents such as these provide the necessary transparency for investors (such as yourself) to understand these costs before you invest.

Here’s a summary of what those costs are:

  • Front-end load (or initial sales charge) paid when you purchase, which is a percentage (up to 5%) of the amount you are investing. It is paid to the investment firm selling you the fund and can be negotiated.
  • Back-end load (or deferred sales charge) of up to 6% paid when you sell. The longer you hold a fund, the less you’re charged and you won’t pay a fee if you hold it long enough (usually 5-7 years). Some companies will let you withdraw some of your money each year without a fee.
  • Low load (or low sales charge) of up to 3%.
  • No load (which = no sales charge). Note that a no load fund is not necessarily a better deal than a load fund. Always compare the MER (Management Expense Ratio) and performance of each fund before deciding.

Tip: Many mutual funds are offered in different series or classes, which are identified by a letter (such as ‘Series A’, ‘Series D’, Series F’, etc.). The purpose of these letters is to identify the fee structure and other features of a fund. Therefore paying close attention to this letter grouping can definitely pay off when shopping around for mutual funds.

Management Expense Ratio (MER)—also known as the fund’s management fee and operating expenses.

Mutual funds pay an annual fee to a management company for managing the fund and its investments. Funds also pay their own operating expenses (such as legal and accounting fees, custodial fees, and bookkeeping costs). You don’t pay the MER directly, but these expenses affect you because they reduce the fund’s return.

The MER is shown as a percentage of the fund’s assets. They can range from less than 1% for money market funds, to more than 3% for some specialty funds. The more complex the fund, the more management it requires, and the higher the MER. For example, Index funds, which require less research and trading because they duplicate an index, have very low MERs.

Other fees include charges you may incur if you switch funds, start a registered plan, or open or close an account.

You may also pay what’s called a ‘short-term trading fee’ if you sell a fund before a certain amount of time. This is a fee designed to discourage investors from trying to make a quick profit by ‘timing’ the market.

The importance of fees and costs over time.

It’s important to understand how much mutual fund costs could impact your fund’s value over time. Take a look at the mutual fund fee calculator (shown here) to see the kind of long-term impact they could have.

Have questions about fees on funds? We’ve got answers.

At Educators Financial Group, our knowledgeable and certified financial specialists are always on hand to provide you with the answers and expertise you need surrounding your investments or any other financial products. Plus with over 40 years of exclusively serving members with the education community, we can provide you with the kind of insight you won’t find anywhere else (such as how to budget for investment contributions based on where you are on the pay grid—or pension income if you’re retired).

To have one of our financial specialists reach out to you about your investment portfolio contact us today.

Click here to get the A to Z glossary of investment terms.

Be sure to check out other articles in The Learning Centre about mutual funds:

Mutual Funds 101: Your essentials questions and answers.

Mutual Funds 101: How does a mutual fund make me money?

Mutual Funds 101: What are the risks of investing in mutual funds? How am I protected?

Mutual Funds 101: The costs associated with mutual funds.

Mutual Funds 101: The top 6 questions you should ask before buying a mutual fund.

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