The details of a mutual fund’s sales charges are outlined in its prospectus. As an investor, it is important that you read and understand all the details, including the sales charges, before you invest.

When purchasing a mutual fund, one of the following types of sales charges will apply:

Front-End Load

The investor is charged a commission at the time of the initial purchase. The commission is usually based on a percentage of the amount invested. The mutual fund’s prospectus outlines the commission percentages that are applicable to that fund.

Deferred Sales Charge (DSC) or Back-End Load

The investor does not pay a commission at the time of the initial purchase, but a redemption fee is charged if the units are redeemed before a specific number of years have passed. Usually, in a declining redemption schedule, the redemption fee is highest in the first year the mutual fund is held and declines after that, eventually dropping to zero. Details of these charges can be found in the mutual fund’s prospectus.

No Load

The investor does not pay a commission at the time of purchase or redemption but there may be a set-up fee charged by the mutual fund company.

Management Fees

When you purchase a mutual fund, you should be aware that all mutual funds charge a management fee, which is paid by the mutual fund and is one of the costs in the calculation of the NAVPS of the mutual fund.

The management fee covers the basic management and operating costs of the mutual fund. A portion of the management fee is paid to the fund’s investment manager(s) for managing the fund. The management fee is calculated as a fixed percentage and is detailed in the mutual fund’s prospectus.

Most mutual fund companies charge certain expenses to the fund, such as costs associated with operating the fund, legal costs, etc. The total management fee plus the expenses mentioned above is called the management expense ratio or MER.

The MER is calculated annually and shows the cost of running that particular mutual fund. Therefore, when determining how efficiently a fund has operated on an annual basis, the MER is a good indicator.

The information contained herein is considered accurate at the time of posting. CIBC, CIBC World Markets Inc. and CIBC Investor Services Inc. reserve the right to change any of it without prior notice. It is for general information purposes only. Clients are advised to seek advice regarding their particular circumstances from their personal tax advisors.

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