Investments can be tricky. When it comes to where you invest your hard-earned cash, there is no sure thing. Not only are there no sure things, but there are so many different options available to you. One such option is the mutual fund. A mutual fund is a type of investment that collects money together from various people and puts it into one fund to make collective investments. If you are thinking about investing in a mutual fund, here are three things you need to know before doing so.
1. There are several different classes of mutual fund shares available.
One of the most important things you need to know about mutual funds is that there are different classes of shares available, and each has its own fees and investment requirements. The different classes are as follows:
- Class A
- Class B
- Class C
- Class I
- Class R
- Class N
You want to speak with a reputable broker and ask them to guide you to the best choice for your investment needs. Even if a trusted friend advises you that their Class B mutual fund shares have performed well for them, you may actually benefit more from investing in a Class R mutual fund share instead. For this reason, you should always seek expert advice from a mutual fund broker.
2. Be aware of the 12b-1 fee.
Most class shares of mutual funds require a 12b-1 fee. The 12b-1 fee is an annual fee that is charged to the mutual fund to cover various costs incurred by the broker. The amount of your mutual fund’s 12b-1 fee will be dependent on the class of your fund shares, as well as on the broker. Some mutual fund class shares come with a higher 12b-1 fee than others, but they usually require less of an initial investment to get into the mutual fund.
3. Your mutual fund could have a sales load associated with it.
Much like many mutual funds require a 12b-1 fee, they also usually have a sales load as well. The sales load is simply another fee the investor has to pay. When it comes to mutual funds, there are actually two different types of sales loads: the front end sales load and the back end sales load.
The front end sales load is incurred when you first invest in the mutual fund. If your mutual fund shares require a front end sales load, then it will be taken out of your initial investment. Naturally, this will decrease the amount of your investment, so you will want to take that into consideration when determining how much you will invest.
The back end sales load is a fee that is only charged when you sell your shares of the mutual fund. The back end sales load charge is usually calculated from the amount of your initial investment and not how much the investment is worth upon being sold. This can be good news for mutual funds that have flourished, but it can hurt if you took a major loss on the market before selling.
As you can see, mutual funds can be a little overwhelming when you are first starting out. However, with the help of a great broker, you will find mutual funds are a great avenue of investing your money for the future. Contact a group like Raymond James Financial Service for more information.