Most first-time investors purchasing mutual funds know that the price tag of a fund is the MER – the Manager Expense Ratio – but time and time again I hear horror stories from clients who had no idea their mutual funds also came with Deferred Sales Charges attached, and are shocked to learn they owe money when they want to transfer their money out.

Deferred Sales Charges are “back-end” sales fees that essentially locks in your money for a certain period of time, often 7 years, regardless of the fund’s performance. If the fund is losing money and you wish to transfer your investments elsewhere during the lock-in period, the Deferred Sales Charge kicks in and there is a penalty, sometimes as high as 5.5% of the amount you want to transfer out. On a $50,000 investment, you’d have to pay $2,750 just to transfer your money.

Watch out!

Many times, these expensive sales charges are difficult to find and may not even be listed on the investment company’s website and buried in a large prospectus that the average first-time investor is not going to read. Back-end sales charges combined with excessive fees and MER’s well over 2% hurt many first time investors who are locked in, overpaying and can’t get out.

This happens all too often leaving a bitter taste in many investor’s mouths and it’s a shame. It doesn’t have to be this way.

Mutual funds can offer efficient diversification and can be a great place to put your hard earned money. Fortunately, there are plenty of investment options that won’t lock you in or overcharge.

Get educated. Make sure you know what you’re paying, how you’re paying it and when it’s owed before you sign on the dotted line.

Avoid Mutual Fund Rip Offs

  1. Do not pay over 2% MER for mutual funds of any type
  2. Avoid any back-end sales charges (DSC)
  3. Avoid front-load sales charges
  4. No locking in – unless it’s a GIC

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