Load-Waived Funds

  

Categories: Mutual Funds, Metrics

Wanna get a mutual fund that normally sells with a load or a commission? Invest a million bucks. Hold it a year or more (usually). And it's yours, no load.

How does this "volume deal" magic happen? Does the broker just donate her commission in that situation?

Um, no. Brokers have boats to buy, mortgages to pay, alimony payment lawsuits to defend. Instead, in the case of a million dollar investment, the people who manage the money essentially fund the broker's commission.

Like...let's say that volume deal commission would be 1.5%. Well, the fund managers then would take 1.5% out of the million bucks they're managing that year (for a fee of, say, 1% a year), and pay that broker quarterly to make up the $15k they've earned in commission. Note that the fund managers collect "only" $10k in management fees that year for managing that money. If the buyer of that million bucks' worth of mutual fund then sells after a year, the money managers usually eat that $5k of loss.

But that event is relatively rare. Most mutual funds are bought to be held a long time, and the odds that the investor holds 10 years or longer are usually way higher than that they sell after a year. (And if they sell before a year, usually they owe some pro rata amount of commission for having jerked everyone around.) But on a 10-year hold, assuming that million bucks doubles in that time period, the fees collectd should vastly dwarf the $15k of commission paid to the kindly, loving broker.

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hundred forty dollars instead of the thirty bucks you could have paid upfront

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