Wanna get a mutual fund that normally sells with a load or a commission? Invest a million bucks. Hold it a year or more (usually). And it's yours, no load.
How does this "volume deal" magic happen? Does the broker just donate her commission in that situation?
Um, no. Brokers have boats to buy, mortgages to pay, alimony payment lawsuits to defend. Instead, in the case of a million dollar investment, the people who manage the money essentially fund the broker's commission.
Like...let's say that volume deal commission would be 1.5%. Well, the fund managers then would take 1.5% out of the million bucks they're managing that year (for a fee of, say, 1% a year), and pay that broker quarterly to make up the $15k they've earned in commission. Note that the fund managers collect "only" $10k in management fees that year for managing that money. If the buyer of that million bucks' worth of mutual fund then sells after a year, the money managers usually eat that $5k of loss.
But that event is relatively rare. Most mutual funds are bought to be held a long time, and the odds that the investor holds 10 years or longer are usually way higher than that they sell after a year. (And if they sell before a year, usually they owe some pro rata amount of commission for having jerked everyone around.) But on a 10-year hold, assuming that million bucks doubles in that time period, the fees collectd should vastly dwarf the $15k of commission paid to the kindly, loving broker.
Related or Semi-related Video
Finance: What is a Back End Load?1 Views
Finance a la shmoop... what is a back-end load? ok people there has to be a diaper
joke in here somewhere doesn't their nappies maybe okay nevermind spoil [Baby boy wearing a nappy]
sports you people are no fun.. back end load refers to the commission charged
when an owner of a mutual fund sells their mutual fund shares you know way
less jokey the back end load is structurally a different type of share
called a B-share and yes we have an opus video on the term you should check
it out so why would you choose a back-end load over a front-end load well
if you pay your commission on a thousand dollars invested to you know start out
on your mutual fund investing sojourn well you start your compounding there
within a safe 970 dollars after having paid the three
percent commission there you compound away on a lower starting nut than you [Front end load calculations]
would have had you paid your commission at the end the problem well say you held
the fund 15 years you started with a grand ie not nine seventy because
there was no commission when you became an owner of the shares of the fun you're
gonna do the B shares take the back end load and after 15 years that grant
doubled three times to become two then four then eight grand in value now you
pay a commission is it three percent still well in some funds it might be so
then you're paying three percent on eight grand or a total commission of two
hundred forty dollars instead of the thirty bucks you could have paid upfront
have you just bitten the bullet in the beginning and bought a shares [A and B share commission value]
well tons of gimmicks crawl around out there when you're buying mutual funds [Ants crawling through cracks on the floor]
hoping to get you to pay up for the brokers right? brokers got to live but
well you just got to understand what you're being sold and some of those
brokers well they have babies at home and you know they need to pamper them [man holding a diaper]
with back-end loads
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What is the difference between load and no load? Load and no load are terms used for different mutual funds. Load mutual funds charge a fee or comm...
A sales charge/sales load is a commission paid by a customer when they buy a mutual fund. The more you invest, the smaller the load %.