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Mutual Fund Fees: Front vs. Back Load - YouTube
Channel: ClayTrader
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mutual funds in their fees in particular
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front end verse back-end loads what
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exactly does this mean on play let me
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explain when I was new to the markets
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mutual funds were definitely kind of
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intimidating because there's all
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different types and there's different
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fee structures and well how did exactly
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does it all work and well first off if
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you're not even sure what a mutual fund
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is I'll put a link down below where I
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talk about just a mutual fund in general
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but I want to get a little bit more
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advanced here and talk about this the
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fee structure and how you actually pay
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for these mutual funds and while there
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are little you know kind of nooks and
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crannies of how all this works from
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definitely a general perspective there's
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essentially two main I you know big
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picture concepts of the framework of how
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these fees work and it all has to do
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with you know the loads that they apply
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on them and you have front-end you have
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back-end but really the question and the
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key question that you need to ask
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yourself whenever you're looking at a
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mutual fund and trying to figure out
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okay how does the fee structure how does
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the Commission structure actually work
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its just ask yourself this question
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right here okay well when so when is the
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key question ask yourself because when
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you start to focus on when that's going
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to force you to focus on well a time
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aspect or in this situation at what
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point in time are they going to charge
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me the fees so when you go down that you
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know kind of pathway you're gonna figure
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out very quickly the type of fee
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structure that is being used so the
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first type that is very common out there
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is what's called a front-end and maybe
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you can figure out exactly quote-unquote
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when the fees are going to show up but
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with the word front that means these are
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gonna happen at the start meaning when
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you invest your money you are getting
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hit with a fee at the front end so
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you're the location the time is boom
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right away so how does this actually
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work well let's just say you have a
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thousand dollars and the front-end fee
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is six percent that means you are
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actually not investing
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thousand dollars you're going to be
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investing $940 how so well remember if
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you have that fee six percent times a
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thousand is what sixty dollars right so
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sixty thousand or six not sixty thousand
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dollars sixty dollars is the fee to get
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started which means if you have to pay
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sixty dollars to get started out of the
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thousand well then that again is where
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the nine hundred forty dollars is coming
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from that you would actually be putting
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to work now sometimes out there they
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have you know low end fees and but we
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know low is just a matter of well maybe
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instead of six percent it's at 2 percent
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or 3 percent so don't when you hear the
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low or high or you know it's all about
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when is the fee actually being applied
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so whether or not it's low or high or
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any of that let's put that all aside the
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key question becomes at what point time
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when is the fee actually hitting me and
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if there is any sort of front end so
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even it's a friend and you know low or
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front end you know what have you the key
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word there is front because that's
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telling you when exactly the fee is you
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know taking place the other type that
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exists out there is known as the back
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end so again I'm sure you can kind of
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figure out where that but back meaning
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you get hit at the end so if you have a
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thousand dollars that you want to put in
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well you get to put in all one thousand
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dollars now the kicker is that when you
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look to exit the mutual fund so when you
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look to take out your investment that is
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when the fees going to hit you now again
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this all varies from broker to broker
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everybody's got their different kind of
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essentially their sales pitches right
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they're trying to get you to invest in
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that sort of fund so and then that's a
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good thing when you have multiple mutual
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funds you have people have to compete
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via the fees and all of that so there's
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you know like I said this is not like a
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universal rule but something out there
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that you'll see is let's just say that
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the back end is you know five percent
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but what a lot a lot of what people will
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do is you know for every we'll just say
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every year this will drop down so if you
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keep your money invested for one year
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then the back end fee becomes four
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percent if you hold it in for another
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year then that becomes the
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percent and so on and so forth so that's
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just an incentive for you to well keep
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your money invested with them you know
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longer and longer and longer now how can
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they do that well there's another
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expense out there known as an operating
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expense and the operating Spence is just
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like what it that's not how you spell
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operating but you get the point
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operating is just you know what just to
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keep in business right because there are
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people behind the scenes that are
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running that mutual fund and all that so
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even if that keeps getting lower and
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lower and lower
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I'm the mutual fund that the company is
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still able to make money because you
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have this expense down here that is
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still bringing in profits and that is
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still being reflected in the investment
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so yes mutual funds have these loads
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that you know could exist but if they're
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you know if the loads are very low you
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have to keep in mind that there is that
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operating expense and for the most part
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the way that is calculated is they just
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take it out of the value of the fund so
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instead of the value of the fund let's
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just say being 100 maybe the value of
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the fund all of a sudden drops down to
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99 and that one weight hundred you just
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said it was worth 100 how is it now
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worth 99 well they took out some of that
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within the operating expense so that's
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kind of how they pull that part out
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isn't it it's not like they hit you with
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the feet straight up usually the value
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of the portfolio itself just declines by
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whatever that operating expense is but
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this is how you know mutual funds are
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broken down a cost perspective wise
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usually by the the loads but again I
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start with a cell and with it the load
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just ask yourself when is this load
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being applied you have front-end loads
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you have back-end loads and all that is
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telling you is when is that fee actually
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going to hit you and you have all sorts
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of philosophies out there oh well
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front-end loads are better because no no
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no no back-end loads are better because
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so you have philosophies for everybody
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that says the front-end load is the wise
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way to go about it you can find
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something that says a back-end way is to
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go about it
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so I'm not here to tell you which is
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better I'm just here to explain how you
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can look through all that how you can
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determine what the fees actually are so
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just focus on that word when and that'll
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carry you right down the pathway that
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makes answering all these other feeds
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much simpler first off thanks so much
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for watching the entire video real quick
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before you go I want to invite you to a
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live webinar
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whatever you want to call it but it will
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be me live revealing to you what I
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discovered that has allowed me to
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transform myself from being an employee
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to being my own boss
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out of 73 days in total I'm going to
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a cruel way this becomes a pitfall for
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many traders I'll explain it all though
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including how to avoid the pitfall that
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it creates for some and yeah the third
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