They're kinda like progressive taxes. Or volume discounts. And they apply to all kinds of products, especially investment ones, where putting to work $10,000 isn't all that different from putting to work a million bucks, depending on the transactor.
Sliding scale fees are really common. The bigger the scale, the smaller the fee per unit sold gets. So a typical mutual fund broker might charge 6% for the sale of anything up to $1,000 worth of NAV purchase. If the buy jumps to $10,000, that fee might be 3%. If the buy jumps to $100,000, it might be just 1%. Way more money put to work "at scale," so the customer pays fewer dollars per unit purchased. Only fair.
See: Breakpoint (not the movie, which sucked).
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Finance: What is a redemption charge?8 Views
Finance allah shmoop what is a redemption charge All right
well when you redeem shares of a mutual fund in
a deferred commission purchase structure there's a charge like you're
not paying your commission upfront you pay it later Remember
that most mutual funds are sold as a shares meaning
that the commission of the fund you're buying is paid
up front That is if you've invested ten grand on
a three percent up front commission structure while when you
step up on the swimming pool starting blocks and the
money is actively starting to be invested your actually starting
the race with ninety seven percent of that ten grand
or ninety seven hundred bucks with three hundred dollars having
gone to the broker for the pleasure of selling you
that fund but some mutual funds are sold as b
shares where there is essentially an exit fee or rather
where there is a charge when you redeem the fund
either because you just want to sell it or you
die in your estate liquidates it or martians kidnap you
and force you at martian gunpoint to call in a
sell order right Well in many cases redemption fees are
waived if you hold the mutual fund some extended period
of time like a year a few years five years
something like that If you hold the fund an extended
period the annual management fee paid to the people buying
and selling securities on your behalf can then cover the
broker's commission So the money managers aren't actually losing money
in the form of that three hundred dollar commission paid
you a broker who sold you ten grand of fund
only to have you three weeks later dump it and
move on to another funds Well there are other benefits
and having this system set up because it encourages mohr
careful selection of mutual funds and longer duration in holding
them And yes the obvious marriage and dating allegories apply
here But we just won't go So when you hop
in bed with a given mutual fund read the fine
print because well all kinds of hidden feed germs exist
in bedrooms airport bathrooms and glass elevators Well all around 00:02:02.98 --> [endTime] the world
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