 Personal finance practice problem using OneNote. Mutual fund contingent deferred sales load. Prepare to get financially fit by practicing personal finance. You're not required to, but if you have access to OneNote, would like to follow along. We're in the icon left-hand side, practice problems tab, and the 1330 mutual fund contingent deferred sales load tab. Also, take a look at the immersive reader tool, practice problems typically in the text area too, with the same name, same number, but with transcripts, transcripts that can be translated into multiple languages and either listened to or read in them. Considering mutual funds, remembering that as individual investors, we can buy individual stocks, individual bonds, but likely we're utilizing tools such as mutual funds, ETS, allowing us to pool our investments with other investors into the fund, the fund then allocating over a broader array of securities in accordance with the rules of the fund, possibly allowing us as individual investors to get more diversification than we otherwise could. Also remember that 401K plans in IRAs can usually be thought of as generally like a mutual fund at its core, which is then under the umbrella of an IRA or a 401K plan, giving you tax benefits you need to consider, as well as giving you some restrictions in exchange for those tax benefits. So when we're purchasing mutual funds, we've got to take into consideration the fees that could be involved, which we can compare to the fees that might be involved in stocks, for example, but the mutual funds, we have to wrap our mind around the fact that they're a little bit different than investing in individual stocks. So if we're investing in a stock, we might have like the brokerage fee, for example, for the trade. When you're investing in the mutual fund, then you've got possibly a commission that you might have a front end kind of thing similar to a broker's fee that you can consider, but if you're purchasing from the source, you might be able to limit like a commission front end fee. Then you also could have the fee, of course, for managing the fund, because no matter what you do, the fund is now gonna take those pooled assets together and it has to basically allocate those funds in some way, which is gonna cost some money, as opposed to just investing in say an individual stock. Now remember that if you have an actively managed mutual fund, that means you're giving more leeway to the manager and they're gonna have to be very good, and they're gonna have to be high priced managers if they're gonna beat the index, the averages, and therefore you would think that those fees would be higher, or you can invest in say indexed funds where the mutual fund is trying to tie to the averages of the market. And in that case, you would think that the management funds would be lower, although still there, because it's less dependent on the professional decision making process, it's just more of an administration task in that case. You also could have fees when you sell the mutual fund, because you can imagine, for example, a mutual fund saying we want to be more steady so that we don't have a lot of buys and sells on the underlying securities within the fund. So we don't want to encourage people, for example, possibly to be buying and selling mutual funds kind of like you're buying and selling individual stocks from a day trading perspective, and therefore you can imagine rules saying you have to hold the mutual fund for a particular period of time or possibly subject to a fee at the point in time that you sell the fund. So those are the three fees that we want to kind of consider. The commission upfront, similar to paying like a brokerage fee with a stock that we may be able to limit, depending on where we buy the mutual fund, the maintenance fee for managing the fund, which could be an ongoing fee, which we could lower in comparison to other funds by using say index funds versus actively managed funds, for example, and the fee for selling the backend fee, which again, hopefully we can remove the backend fee by holding on to the mutual fund past the period that it's required to not get charged if that's how they're implementing the backend fee. That said, we're imagining an investment of 55,000. There's no front end load, meaning no commission charge, possibly because we're buying it directly from the issuer of the fund. So contingent fee, the sales load is 4.5% for withdrawing during the first year. So we're imagining then a rule saying you can invest in the mutual fund, but if you take the money back out within the first year, we're trying to disincentivize people from doing that because that makes the mutual fund have to manage that process by buying and selling the stocks that are underlying within the mutual fund, which are trying not to do, they're trying to keep that somewhat stable, they're gonna charge you the fee. So let's imagine that they withdrew in the first year, $8,800. So we put some money in the mutual fund, we thought we were gonna be able to hold on to it for more than a year in the mutual fund, but then we had to take out 8,800 before that year that timeframe had passed. That means that that amount that we took out, the 8,800 would be subject to the sales load, the contingent fee. So that would just, once we know that the contingent fee calculation be pretty straightforward, 8,800 times the 4.5%, we've got the fee of $396. So the bottom line is once again, we wanna be considering what are gonna be the fees that are gonna be involved. It's a little bit different than looking at individual stocks that we would be purchasing because there is the management of the fund. And again, you could have this back-end fee that you wanna make sure that you are aware of if you think that you may need to pull the money out before say some timeframe has passed that where you wouldn't get charged for pulling the money out.