4. Comparing mutual funds

Understanding the Costs Involved in Mutual Fund Investments

Lorenzo is debating purchasing a mutual fund, but he has some questions for his financial advisor, Neha. The following table presents information on four different open-end mutual funds that Lorenzo and Neha are discussing. Use the information in the table to answer the questions that follow.

FUND	NAV	NET CHG	YTD % RET
MinT p	17.32	0.03	3.0
PwrSL r	15.77	0.13	5.9
GMAR	40.81	0.27	8.4
TopLA	39.21	0.36	9.5

LORENZO: After some research, Ive narrowed it down to these four funds, but can you explain to me the relationship between 12b-1 fees and fund performance?

NEHA: Generally, funds that charge 12b-1 fees, such as MinT p, (do not necessarily, always) outperform funds that do not charge these fees.

LORENZO: What about front-end load fees? For example, suppose TopLA has a front-end load fee of 6%, when do I pay this fee?

NEHA: If you purchase 100 shares of this fund at the NAV, you will pay a commission of ____, but when you sell these shares you will pay ____

in front-end fees.

LORENZO: It sounds like these fees could start to add up. Whats the most I can expect to pay in fees?

NEHA: If a fund charges a 2.5% front-end load and a 2.5% 12b1 fee, then it can charge a maximum of only

____% in back-end load charges without violating the cap.

LORENZO: Thanks! This was really helpful. So it sounds like youd recommend looking for (Low-load, back-end load, front-end load, no-load) funds whenever possible.