Three kinds of costs
Front load
- Cost to enter (buy) the product
- It is part of the price of the product (embedded in the price of the product)
- Mutual funds have zero front loads generally
Expense ratio
- Fees to take care of the running costs of investments managers each year
- Includes the sales commission paid to sellers of mutual funds
- Usually a percentage of the money in the investment
- Low for debt-oriented products and high for equity-oriented products
Exit cost
- Cost of selling the product
- Usually falls off to zero if you hold the product for one or two years and more
Examples of market-linked products
- Stocks, Mutual funds, equity, real estate, gold, etc
Sources