How to Avoid Front End Charges on Mutual Funds

An upfront sales charge can eat into the investment returns of your mutual fund.

An upfront sales charge can eat into the investment returns of your mutual fund.

As a young couple, you may have too much going on in your lives to be able to micro-manage your investment portfolio. A collection of well-run mutual funds, in which you turn over the management of your money to seasoned investment professionals, may be a sensible investment option for you. With a broad range of mutual funds available, you can usually invest in a quality fund without having to pay an upfront sales charge.

Buy No-Load Funds

The simplest way to avoid paying an upfront sales charge on a mutual fund is to buy a no-load fund. A no-load fund charges no sales fees to customers, although it may charge annual operating expenses. While not every mutual fund is available in a no-load format, some well-known mutual fund companies, such as Vanguard, sell no-load funds exclusively. A fund that charges an upfront sales load is not necessarily a better mutual fund.

Investigate Different Share Classes

If you buy a load mutual fund, you usually have the option of how you want to pay your sales charge. Typically, load mutual funds offer three share classes. If you want to avoid paying an upfront sales charge, don't buy the A shares. B shares offer a back-end sales load, also known as a contingent deferred sales charge, that typically drops 1 percentage point each year you hold the fund. After a period of five to seven years, most B shares convert to A shares, so you can ultimately end up with the A shares without paying the upfront sales charge. Many funds also offer a C or "level-load" share that allows you to pay an annual fee rather than a front- or back-end sales charge.

Buy A Large Amount

Most funds that charge upfront fees allow you to buy fund shares free of charge by purchasing at least $1 million. If you can't buy the entire $1 million at once, most companies allow you to sign a letter of intent to buy that amount over the next 13 months. If you stick to the terms of the letter of intent, you can buy your fund shares with no upfront sales charge.

Use Rights of Accumulation

Rights of accumulation allow you to buy A shares of a mutual fund with a reduced or eliminated sales charge. Under a rights of accumulation program, a fund company allows you to use previous purchases to qualify for a breakpoint, or reduced sales charge, on future purchases of the fund. Because many funds allow you to combine purchases from spouses, children or other relatives, you may be able to qualify for fee-free purchases.

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