1. Mutual Fund
A mutual fund is a type of security that allows investors to pool their money together into a single investment that is professionally managed. Mutual funds can invest money in stocks, bonds, cash, and/or other assets. These underlying securities, known as “assets,” combine to form a single mutual fund, also referred to as a “portfolio.”
2. Mutual Fund Fees
Fees are charged to the investor when buying or selling certain types of mutual funds. There are four types of fees: front-end load fees (at the time of purchase) typically range around 5% but can go up to 8.5%. For example, if you invest $1,000 with a 5% front-end load, the fee would be $50, making your actual initial investment $950. Back-end load fees, also known as “contingent deferred sales charges” (CDSC), are only charged when selling a back-loaded fund. These fees can be 5% or more, but the fee amount usually decreases over time and can be reduced to zero after a certain number of years. Funds that charge fees may waive fees under certain qualifying circumstances, such as purchases made under a 401(k) plan. No-load funds do not charge any fees. These are the best type of funds to use, as reducing fees helps maximize returns. When researching mutual funds, you can identify fee types by the letters A or B at the end of the fund name. Class A funds are front-loaded, while Class B funds are back-loaded. Sometimes, funds that are fee-waived have the letters LW at the end of the fund name. Again, make sure to search for funds that do not charge fees. Some good no-load mutual fund companies include Vanguard, Fidelity, and T. Rowe Price.
3. Class of Mutual Fund
Each mutual fund has a fund class, which is essentially a classification of how fees are charged to the fund. There are many types of mutual fund classes, each with its own advantages and disadvantages, most of which revolve around expenses. Class A funds are also front-loaded because the fees are charged on the “front” when an investor buys shares in the fund for the first time. Fees typically range from 3.00% to 5.00%. Class A shares are best for investors who use a broker and intend to invest larger amounts and will buy shares infrequently. If the purchase amount is sufficient, investors may qualify for “breakpoint discounts.” Class B funds are a category of mutual fund shares that do not impose front-end fees but do impose a contingent deferred sales charge (CDSC) or “contingent deferred sales fees.” Class B shares also tend to have higher 12b-1 fees compared to other classes of mutual fund shares. For instance, if an investor buys Class B mutual fund shares, there is no front-end fee, but they will pay a back-end fee if the investor sells shares before a specific period, such as 7 years, and can be charged up to 6% to redeem their shares. Class B shares may eventually convert to Class A shares after seven or eight years. Thus, they may be best for investors who do not have enough investment to qualify for the breakpoint level on Class A shares but intend to hold Class B shares for several years or more. Class C funds impose “level fees” annually, which are typically 1.00%. These expenses never go away, making Class C mutual funds the most costly for investors who invest for long periods. The fees are generally 1.00%. Overall, investors should use Class C shares for the short term (less than three years). Class D shares are often similar to no-load funds in that they are a category of mutual fund shares created as an alternative to the more common front-loaded or back-loaded or level-fee funds of Class A, B, and C, respectively. Class Adv shares are only available through an investment advisor, hence the abbreviation “Adv.” These funds are often no-load (or so-called “fee-waived”) but may have 12b-1 fees up to 0.50%. If you work with an investment advisor or other financial professional, Adv shares may be the best option for you, as costs are often lower. Class Inst shares (also known as Class I, Class X, or Class Y) are generally available only to institutional investors with minimum investment amounts of $25,000 or more. Fee-waived funds are an alternative to loaded mutual fund classes, such as Class A funds. As the name suggests, mutual fund fees are reduced
Source: https://www.thebalancemoney.com/key-mutual-fund-terms-defined-2466595
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