A rose by any other name does not smell as sweet if that rose happens to be a mutual fund. With thousands and thousands of funds out there, many of them having incomprehensible names, it can be difficult to figure out what the heck you’ve got. The same is true of a fund’s fee category.
Excuse the mixed metaphor but there is an alphabet soup of the so-called mutual fund series, which designates various fee and advice categories. Since fees are one of the primary reasons why so many mutual funds lag behind their benchmark index in performance, it behooves us to know what and how much we are paying.
Here’s the series breakdown:
A- (sometimes B) Series:
Generally, the various series below spins off from these funds, which are referred to as the original product. They tend to be fully loaded with fees, the highest MERs and often front-end loads and deferred sales charges (DSC), which you pay when the fund is sold if you haven’t owned it for more than six years. They are designed to be sold by commission-based advisers and, in many cases, the fees can be negotiated.
These were one of the first versions of the original funds. They are stripped of the fees paid to advisers (both trailer fees and sales commissions) and are designed to be sold by fee-based or fee-for-service advisers. There will be no load fees and low MERs, but you will also pay out of pocket for the adviser service. The benefit in selecting these funds is that since the adviser isn’t compensated by the fund, there may be less bias in the selection of funds.
These funds are also no load and have lower MERs, sometimes less than half of the original – primarily designed for a do-it-yourself individual. The trick is to know what funds are available in this version. Currently, Royal Bank of Canada, TD Canada Trust e-Series and National Bank of Canada offer them.
These are all about avoiding, not death, but taxes. While fees may not be lower than F- or A-series funds, the monthly distributions are structured in such a way that attract a lower rate of tax – useful for those with investments outside registered accounts.
Your mutual fund statement may not make it clear which series you have, but it is worth knowing since you might have the option of reducing the fees.