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How to compare mutual funds?

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15th Nov 2009 by Joseph Pousada

You would want to talk to your financial advisor about comparing mutual funds before investing. There are many aspects to comparing and they can walk you through the specifics of each fund. There are no-load funds in which there is no sales charge to buy or redeem. However, be sure to ask if there are redemption fees if you withdraw/sell your shares within a certain time period. Many no-load funds will have these to discourage market timers from adversely impacting the performance of the fund. There are load- funds which do charge a sales charge. There are typically three basic forms of load funds. One basic type of load-fund is the front end load in which the sales charge is charged up front. This can reduce the number of shares you initially purchase. Be sure to ask about break-points with front end load funds as once you hit certain amounts invested in the fund the sales charge is reduced. Even if you are looking to dollar cost averaging to go into the fund, ask if the fund will accept a letter of intent that you are going to invest a certain amount within a certain time to qualify for the lower sales charge. Another sales charge is the back end load fund. The back end funds usually charge a sales charge if you sell the fund within a certain time period. The back end sales charge is usually a scale in which the longer you hold the fund the lower the fee, until you meet the time frame needed and the shares are usually converted to the front end class of shares. One issue to consider is the 12b-1 fees on these funds are usually higher than the front-end load counterparts while the funds are in the back-end share class. There are also level-load funds in which these share class of funds will charge a back end sales charge in a shorter timeframe than the back end sales charge. The downside to such an investment is that they never convert to the front end share class and do typically will have a higher 12b-1 fee than their front end load share counterparts. With these basic factors to consider and others depending on the fund you wish to invest it is very prudent to compare them with your financial advisor. Many advisors will have their own proprietary software to go over all the details and give you a hypothetical projection that will take into account various factors such as your investment timeframe for this investment. If they do not, you can ask that they do one with you using the calculator on the below referenced link from FINRA (Financial Industry Regulatory Authority).

Reference:
http://apps.finra.org/fundanalyzer/1/fa.aspx

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3rd Nov 2009 In Mutual Funds 1 Answers | 566 Views

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