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Understanding the Costs Involved in Mutual Fund Investments

Bob is debating purchasing a mutual fund, but he has some questions for his financial advisor, Cho. The following table presents information on four

different open$-$end mutual funds that Bob and Cho are discussing. Use the information in the table to answer the questions that follow.

BOB: After some research, I've narrowed it down to these four funds, but can you explain to me the relationship between $12b-1$ fees and fund

performance?

CHO : Generally, funds that charge $12b-1$ fees, such as MinT p$,$ do not necessarily grad outperform funds that do not charge these fees.

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

CHO: 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.

BOB: It sounds like these fees could start to add up$.$ What's the most I can expect to pay in fees?

CHO: If a fund charges a $4\%$ front$-$end load and a $4\%12-b1$ fee, then it can charge a maximum of only

$\%$ in back$-$end load charges

without violating the cap.

BOB: Thanks! This was really helpful. So it sounds like you'd recommend looking for

funds whenever possible.

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