Question

You are considering investing in one of several mutual funds. All the funds under consideration have various combinations of front-end and back-end loads and/or 12b-1 fees. The longer you plan on remaining in the fund you choose, the more likely you will prefer a fund with a __________ rather than a __________, everything else equal.

Answer 1

Answer:

Front End Load; 12b-1 Fee

Explanation:

An investor in mutual funds will most likely prefer a fund with front end load to one that has a 12b-1 fee.

A front end load is defined as a commission that a person pays upfront when the invest in an asset. Typically the percentage of front end load falls between 3.75 to 5.75%.

On the other hand 12b-1 fee is an annual distribution fee that is paid on mutual funds. It is taken as an operational expense and is between 0.25 to 0.75%. This charge is for promotion activities for prospective investors, and it is debited from old investors.

It is better for a long term investor to opt for the front end load that is paid only one. The 12b-1 fee will be taken everyone there are promotional activities on the asset.