All mutual funds charge fees. These fees pay the costs of researching, managing, trading and administration of the securities in the portfolio. There are two types of expenses related to mutual funds: expenses you pay directly and annual expenses that are deducted from fund assets on an ongoing basis.
Expenses you pay directly
These are fees you may pay when you buy or sell shares of certain classes of funds (A, B, C ). They are often called "sales charges". Below are descriptions of the ways that three common share classes assess sales charges:
Class A or front-load shares: In this share class, you pay a sales charge up-front, reducing the amount of your investment by the amount of the sales charge. This type of sales charge is generally in the 4-5% range. (Please note that sales charges vary among fund families and may be higher or lower than the stated range.) Class A shares offer investors an advantage when making larger investments as front-end loads often decline as the investment amount increases, so you may be able to reduce your direct fees by consolidating your investments into larger amounts or investing within a single mutual fund family. If you hold funds away with another broker, you may still qualify for breakpoints under the rights of accumulation policies within a given fund family. Be sure to tell your Financial Advisor about any such assets as this could significantly reduce your direct front-end sales charges.
Class B or back-load shares: Class B shares do not charge a front-end load. Instead of charging the fee directly, the fund spreads the fees out over some specified time period, usually seven to eight years. If shares are sold prior to the end of this period, this share class may carry a contingent deferred sales charge (CDSC). There are two main advantages to Class B shares. First, all of your investment immediately goes to work in the market for you, allowing you to benefit fully from any potential market appreciation. And second, many back-end loads decline over time, disappearing entirely if you hold funds long enough. Lastly, after a certain period of time, Class B shares may offer the shareholder the ability to convert to, or may automatically convert to, another class of shares, typically Class A shares.
Class C or level-load shares: Class C shares like B shares have no initial sales charge, so 100% of your investment dollars go to work immediately. They too impose a contingent deferred sales charge (CDSC) directly if the shares are sold within a specified time period, generally 13 to 18 months. The CDSC is generally smaller than that of a B share, amounting to approximately 1%. Class C shares are generally referred to as service class shares. The primary advantage of Class C shares is that they allow greater flexibility in managing your portfolio over a three-to-five-year time horizon.
Expenses you pay through the Funds
There are two types of expenses that you may pay indirectly through your fund:
Management and Administrative expenses: The costs of managing and administering a fund – including investment management fees, custody, auditing, administrative expenses and others – are spread equally among shareholders of each class of shares. These fees are deducted daily from your fund assets.
12b-1 fees: These fees are paid out of assets on an ongoing basis to cover the cost of distribution of certain share classes of selected mutual funds. Not all fund share classes have 12b-1 fees.
All investment products including mutual funds involve risk. Principal value and investment return will fluctuate, so an investor's shares/units when redeemed may be worth more or less than the original amount. A complete explanation of risks, charges and expenses may be found in the prospectus. Investors should carefully read and understand the information contained in the prospectus before investing or sending money.
