There are many different investment options available to help you reach your financial goals. Regardless of which investment you choose, it is important to understand the costs involved and how they can affect your investment.
Mutual funds offer many benefits to you as an investor, including professional management, investment diversification, easy access to your money and convenience. For many investors, mutual funds can provide all of these benefits at a fraction of the cost of creating a portfolio of individual investments. However, not all mutual funds have the same fee structure and the costs of some funds will impact your return more than others.
The information that follows will help you better understand the costs involved with mutual fund investing so that you can make well-informed decisions and get the value you want out of your investment.
2. Trading expense ratio
The TER represents the amount of trading commissions incurred when the portfolio management team buys and sells equities (stocks) within a given fund. Already published in regulatory documents like the Management Report of Fund Performance, the TER is also disclosed in the Fund Facts document which is required to be provided at point of sale.
Want more details? Check out this article on the anatomy of an TER.
3. Sales charges
A load is a sales charge that an investor may incur when buying or redeeming units or shares in a mutual fund. It is separate from the MER and is not to be mistaken for the ongoing trailing commissions that make up part of the management fee.
There are two types of sales charge structures:
- No load - No sales charges are paid when a no-load fund is purchased or redeemed.
- Front-end load or initial sales charge - A front-end load is a sales charge paid upon purchase of a fund and is expressed as a percentage of the amount you invest (ranging from 0% to 5%). The sales charge, which is often negotiated with the advisor prior to investing, is deducted from your initial investment and paid to your advisor’s firm.