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What Are Some of the Fees Associated with Investments?
When you buy an investment
product, you are likely to be bombarded with terms that are unfamiliar or
confusing. For example, one of the first things you want to know is: "What's it
going to cost me?" But with investment product sales the answer may lead to
more questions. What in the world are "front-end loads"? What about "no-loads"
or "back-end loads"? Or, how about "12b-1 distribution fees"?
If you don't understand these terms, ask questions. You should always ask your
investment salesperson for a simple explanation of anything you don't
understand.
To help you get started, here is some basic
information about the kinds of fees that may be charged by banks and other
entities that sell investment products. The reference list at the back of the
brochure will give you more information.
Front-end loads or asset-based sales charges
are sales commissions. This is how a bank or any other intermediary makes
money. These fees are set as a percentage of the amount you invest. They can
range up to 8.5 percent of your investment.
Back-end loads, also known as contingent deferred sales charges or
redemption fees
, are sales charges that you don't pay until you redeem or cash in your
investment (sell your shares back to the fund). Back-end loads are generally
calculated on how long you keep your investment: the sooner you sell, the
higher the fee.
12b-1 fees
are fees charged by some funds to cover advertising and marketing costs.
Management fees cover the cost of paying the fund's investment advisor,
who is the person or entity that recommends which investments the fund should
buy or sell. These fees can also be called investment advisory fees
or account maintenance fees
.
What about fees on annuities?
Surrender charge fees are fees the insurer charges if you withdraw your
funds before a certain period of time. This is a little like an early
withdrawal penalty on a CD.
Annual charges
cover the cost of administering the annuity contract.
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