This is a post by our regular columnist Clark.

It is common knowledge, at least among personal finance circles, that mutual funds charge high fees. These fees come in a variety of forms and this series will take a look at them. Please note that this series is written with the North American readership in mind and that some charges and fees may not be applicable to both sides of the border.

Sales Load

When a broker (salesperson) is involved in the sale of a mutual fund, which typically is the case, the fund company pays a commission to them. This commission is termed as “sales load” and can be treated as being similar to the trading commission that investors pay their discount broker when they buy stocks or exchange-traded fund (ETF). Please note that the comparison is only meant to show similarities in the transaction chain and not to equate the actual percentages themselves. There are two types of sales loads.

Front-end Sales Load

This type of fee is charged at the time of purchase of mutual fund units. Front-end fees are a load on purchases since it decreases the amount of money available for purchasing mutual fund units. E.g., Mr. Investor may contribute $5000 to buy units of mutual fund ZYX, but if the fund has a 5% front-end sales load, then they will be left with only $4750 [($5000-($5000*0.05)] for the actual purchase. The ‘missing’ $250 was deducted from the contribution to pay the seller (broker).

Deferred Sales Load

As the name implies, this type of fee is charged after purchase (hence, deferred). To be specific, the charges are paid when Mr. Investor redeems their fund units. For such a back-end sales load, there is no front-end sales charge and Mr. Investor would have the full $5000 (assuming there are no other fees) for purchase of ZYX fund units (continuing from the example above). If the fund has the same 5% charge but in the deferred form, then the sales load will be withheld at the time of sale (redemption). Generally, mutual funds will use the lesser amount of the initial and final value of the investment to deduct the back-end sales load. However, it would be negligence on the investor’s part if this was assumed to be the case all the time; a look at the fund’s prospectus should clarify whether this is the case for that fund.

Contingent Deferred Sales Load

The widely used type of deferred sales load is the contingent deferred sales load – the contingency being the length of time that the investor holds the fund units. So, the longer the holding period, the lower the back-end sales charge and may become zero if the investor stays invested for the maximum number of years as outlined in the fund’s prospectus. E.g., Fund ZYX may have a contingent deferred sales load as given below:

  • Held for 1 year: 6%
  • Held for 2 years: 5%
  • Held for 3 years: 4%
  • Held for 4 years: 3%
  • Held for 5 years: 2%
  • Held for 6 years: 1%
  • Held for 7 years: 0%

Typically, a fund with a contingent deferred sales load may also have a 12b-1 fee (discussed in Part II) that is collected annually.

No-Load Fund

A fund with no load will not charge any sales fees. However, there are certain fees that are not classified as sales load and hence, they can be collected while still maintaining the “no-load” tag. E.g., sales load does not include purchase fees, redemption fees or account fees.

Part II of the primer will discuss some of the other charges associated with owning mutual funds.

Have you held a mutual fund with front-end or deferred sales loads? Have you paid the contingent deferred sales load? Or, did you consciously hold onto the fund to avoid the charge?

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism.  You can read his other articles here.

Notify of

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Inline Feedbacks
View all comments

Really informative…

Thanks for sharing….

Personally, i think this is sort of misleading. I dont think there is a company out there that doesnt exclusively use contigent DSCs, and i work for a company that only uses 2 year and 3 year contigent DSCs. You can sort of feel the bias against mutual funds as you read this.

What about the higher MER’s for no-load regular funds vs Series F funds?

Via my discount broker I can’t buy Series F mutual funds, which are reserved (so they tell me) to for-fee advisors. These are desireable because their MER (1.0% for my fund of interest) is much lower because there are no trailer fees paid back to the broker/advisor. However, Scotiaitrade doesn’t allow access there and only allows me to buy Series B, which for this particular fund (ticker FSC202) are 2.0% MER. So Scotiaitrade is being ‘nice’ by not charging the front end sales charge, but they get a 1.0% trailer from the fund company!!

To summarize:
Series B – front end load up to 5% (broker chooses), Scotiaitrade chooses to charge 0%, MER 2.0%, Scotiaitrade gets 1.0% kickback every year.
Series F – no load, but not available from Scotiaitrade, MER 1.0%, no trailer/kickback to broker/advisor.

Why should I give Scotiaitrade 1.0% of my assets every year for merely existing? I’d love if I could buy Series F and am considering a switch to a for-fee advisor to get access to these; does anyone know another way to get access to these funds?

I see that ING in the States now offers the ability to buy stocks, mutual funds and ETFs with no account minimums.

Anybody heard whether this will be coming to Canada?

Timely post as I was just sorting out my wife’s old mutual fund account and she has some DSC and FE funds. I noticed that the advisor appears to be changing from DSC funds to front end load funds as the DSC expires. I assume this is just churn for his benefit, since the funds are exactly the same.

If anyone is looking for some great no-load funds I highly recommend Vanguard. Their fee’s are some of the lowest in the industry.

I simply “strongly dislike” FE and DSC.

Unfortunately, MF’s are the best way for the average investor to start, with minimal cost and little risks. The place to start is the banks. No front, back, side, up, whatever fees (for the average joe and jane). Just the MER’s to deal with.

@alexander45: ING has the MF’s right now, no brokerage available yet.

Mutual funds are bad enough. If you add a sales fee on top of that, they become downright toxic. I’d hope investors educate themselves and realize the alternatives of mutual funds.

Thanks for the comments.

@alexander45: Thanks to your comment and my subsequent search, I learned that ING owns the Sharebuilder website.

@Financial Uproar: What are the alternatives?? I’m 20ish, finished school, I only have $50 bi-weekly to invest. (that is not me, just asking because I am curious)

: That is ING in the states only. maybe ING Canada will buy ShareOwner??? :)

@ nobleea

The churn is possibly the 10% free switch that some DSC funds allow each year. In my case I have an old DSC MF that I call in each January and get the 10% free switch. My old dealer put it in the same fund but as a FE load which effectively reduces the timeline of the DSC over the years and allows some flexibility. This means that you can pull the money out anytime (careful to avoid the short term trading fees within 30 days usually) and use it to buy other funds or stocks.

@JFG If someone only has $50 bi-weekly to invest, chances are they have significant consumer/student loan debt. I’d recommend paying that off first.

Then I’d recommend saving for a house, or whatever medium term goal they have.

AFTER all that is done, I’d be okay with them investing in a mutual fund, providing there is no sales charge and the MER is under 2%. That’s not an ideal solution, but it’s better than doing nothing. Or, they can save that money in an interest bearing savings account and use it to buy ETFs in sectors that are beaten up.

Basically what I’m saying is that if someone only has $50 every two weeks to invest, that money would be better spent on a bunch of other things.

@Financial Uproar: I do not want to derail this, but I find myself disagreeing with you 100%.

Thanks Clark for the fee lesson. I just hope people look a little more at their investments and actually ask questions. it is after all, your money.

@JFG: If ING Canada can provide a low-cost option like Questrade, then we are talking!

It’s good to see these fees explained because many people think that mutual funds only have an MER associated with them and no other fees. I guess that is because people are primarily familiar with bank mutual funds and they typically are no load funds.

Some of the better funds do have some sort of load though, so this information is definitely helpful for those people looking to branch out from bank mutual funds.

Hi FT & Clark,

There are a couple of significant points missed or not quite correct.

1. The deferred load as you mention does not exist in Canada. I believe that is a US version. Any fund that has a deferred load, or “DSC”, is always a contingent load that declines to zero, usually over 7years.
2. The load is supposed to pay for advice. We call No Load funds “No Advice” Funds. With a No Load fund or ETF, you need to pay extra for advice. The value you get for this fee depends on the quality of the advice you receive.
3. No Load funds normally have an MER similar to load funds. The MER is “the fee you DO pay”. For long term investors, the total fees on “No Load” funds is essentially the same as on “Load” funds.
4. If you invest DSC and are a long term investor, you don’t normally pay the fee. For the long term investor, DSC is “the fee you DON’T pay”. Most advisors will not charge to switch investments and it can be done for no fee within the same family. Many advisors will also rebate back to you any DSC if you switch to a different fund company. In this case, as long as the money stays invested for at least 7 years, you don’t pay the DSC.
5. The “12b-1 fee” is also a US fee. I have never seen it charged in Canada.


Thanks for the mention. A recent survey found that most investors are not aware of all the fees they are paying for their investments. So, it is good to know!

The Globe and Mail reported only 21% of advisors are still using DSC. Another type of DSC would be “Low Load” or “LL” which elects to have a shorter penalty redemption schedule of two or three years. The advisor gets paid less up front, but in the interest of the client, units will mature faster allowing greater flexibility for changing times.

@Ed Rempel: Thanks for the clarifications.

@CC: You are welcome!

Does anyone know the answer to this:

I recently stopped buying DSC funds and am slowly taking out my “free” 10% per year, and theoretically I should be able to take out whatever is left after 7 years. However, if I had contributed, for example, $1000 per year for 7 years, I should be able to withdraw $1000 each year, no (i.e. the first $1000 has been there for 7 years dropping the DSC to zero)?

Ed Rempel, FT, and Tom C:

There is an issue with your point 3.

This actually comes from the fact that Canada does not regulate what is a “no load fund.” When you mentioned “no load fund,” you included funds that are sold at 0% front load like what Tom C referred to. In the US, only mutual funds that pay a net trailing commissions that are equal or less than .25% are defined as “no load fund.” I think that the US definition helps to protect mutual fund investors, since there is more clarity in terms of the fund’s commission structure and amount.

If we use the US definition of “no load fund,” then there are very few companies in Canada that offer “no load fund” families like RBC, PH&N, Goodman Beutel, etc. They are usually called D series and can be bought through discount brokerages. For example, RBC Global Precious Metals Fund D Series has a MER of 1.24%, while RBC Global Precious Metals Fund A Series has a MER of 2.09%. The differences in MER is due to the large trailing commission to pay the FA for A series. Using the US definition of “no load fund”, “no load funds” in Canada do have lower MER than “load funds”.

The reason I bring this up is that I have seen misleading advertisements that suggest that their company’s funds do not pay commissions to financial advisers by using “no load fund”. I have heard cases where advisers hide behind the term “no load fund” to suggest that they are not commission based. This is only possible in Canada due to the fact “no load fund” is not defined by government regulations.

Hi TomC,

Maddening, isn’t it? The discount brokerage wants to get the full 1% trailer that is supposed to pay for advice even though they don’t give you any!

Class F funds are a better comparison to ETFs, since the MER includes the fund manager but not the extra cost of advice. The MER is generally about 1% lower.

I’m not aware of any way to buy them, other than through a fee-based advisor. The advantage may not be much, though, since the fee-based planner will probably charge you 1%. So you end up paying the same amount.


Hi noblea,

If your advisor it switching to F/E at the end of the 7-year DSC schedule, it is probably because the F/E pays a higher 1% trailer fee, while the DSC on some funds only pays a .5% trailer.

He is probably not charging a fee to make the switch and he is not switching to a new DSC to make himself a new commission, so it is not churning.

It actually costs you nothing, but the advisor makes an extra .5% trailer fee. It also means that it is easy to see on future statements that this amount can be sold with no fee, so there may even be a plus for you.

However, the advisor is supposed to disclose to that he gets a higher trailer fee. That is probably the main reason for it, and even if there is no disadvantage for you and even a small plus, the advisor should disclose the reason for the transaction to you.

If he had, then you wouldn’t have to post wondering why.


Hi Prudent Planner,

Unfortunately, Vanguard funds are not available in Canada.



I think the banks are the last place to go. If you are paying an MER, you should look for top fund manager for your money.

Top fund managers will not likely be employees of a big bank or insurance company. They usually create their own investment firm and get contracts with independent mutual fund companies. A fund manager with his own firm can make 10 to 50 times the earnings of a bank fund manager, who is usually on salary plus bonus. If they are good, then would leave for the much higher income.

In my opinion, most bank funds are “closet indexers” which are the worst choice of mutual funds. They are the only ones that generally underperform every year. By trying to be similar to the index but still charging the full management fee, there is little hope of outperformance.

Bank funds may also have management overseeing a fund manager. The purpose of these funds is usually to gather assets, not to focus on top performance. Funds usually gather assets more quickly if they do some “window dressing” – putting popular or “safe” stocks in the top 10 before month end, so they show on public documents.

These types of practices usually result in more people investing in them, but they are not effective for getting good returns.

If you are looking for an All Star Fund Manager, he is almost definitely NOT an employee of a big bank or insurance company.


Hi Big E,

Hey, that could be my nickname! :)

If you have multiple purchases into a fund and withdraw some money, fund companies will always withdraw the free amounts first. So, each year you would have $1,000 become mature plus 10% of the remainder, so you should be able to withdraw all of it for no fee.

You can also call the fund company or your advisor and ask what the maximum you can withdraw without a fee each year. These amounts are easily available.


Hi Ed,

You start at a bank. Easier, gets your feet wet, relatively easy to understand and “usually” no hidden cost. Most people that start have no idea about “who is the best manager”. Explaining future earnings to someone starting to invest is not easy. Add to that Fees, Load, no-load, etc…. And you wonder why most people have no nest egg??

I stand by what I’m saying. When you start, go to bank, get a TFSA or RRSP MF account going. Stick to basics. Learn about your investments and grow from there.

Anybody with $25K should move away from the banks and start to look at better investments and an advisor. By that time, they should have a basic understanding of Mutual Funds, Stocks, Bonds, etc.

And please realize that most people that don’t understand their investments are the people with actual money. I help people making sense of their money and nothing is more maddening then having to explain to them that they can’t/shouldn’t sell their investments due to fees (IG comes to mind). And no, they have no idea or refuse to see the truth.

Investing is easy and I find (after reading your post) you complicate things. Clark is talking about fees and you are concerned about the manager… What he described here (with a few errors) is the basic of investing. It’s your money, know what you are paying for.

Hi Henry,

Good point about the term “no load” not being defined in Canada.

The definition may not necessarily help, though. For example, compare to funds, which are typical of what you could find in Canada:

Fund A: MER of 2.5% with 1.5% to the fund manager and a 1% trailer fee to the adviosr.
Fund B: MER of 2.5% with the bank keeping the entire 2.5% and paying the fund manager and bank advisor salary plus bonus.

What is the difference? Fund B would be considered “no load” by the the US definition, but there is no advantage whatsoever to the investor.

In fact, the investor generally gets a poorer quality fund manager and advisor for the same money.

The RBC Global Precious Metals D fund you mentioned is more of a volume purchase than a no load version. There is a difference in trailer fee, but the minimum investment is $10,000, while the version A has no minimum investment.



I agree that education about investments is very important. Clark’s article on fees is a good primer.

Your point about starting with the banks when your portfolio is small (say under $25K) may be fine for the “average person”, but is not what I would recommend for someone I care about.

I was just trying to point out that “knowing what you are paying for” is not just a matter of comparing fees. There are quite a few considerations more important than fees when evaluating investments.

For example, which hockey player would you prefer:

John Mitchell – $500,000 salary (free agent recently resigned by the Leafs)
Sidney Crosby – $8.7 million salary (possibly the world’s best player)

Which fund would you prefer:

Fund A: 10%/year return for the last 10 years after an MER of 2.5%.
Fund B: 5%/year return for the last 5 years after an MER of 2.1%.

Or which of these funds would you prefer:

Fund C: 5% return last year, MER of 2.5%, fund manager has a stellar 20-year record and owns his own investment firm.
Fund D: 10% return last year, MER of 2.4%, fund manager has only been fund manager for one year and is a salaried bank employee.

Any discussion of “knowing what you are paying for” should not end with comparing fees.

It is much more complex to learn about evaluating the quality of an investment, but even new investors should begin learning about it.


I have been in a bank mutual fund that has returned 9.6% average return for the last 10 years after expenses. It is no load – how can several of you posters criticize a return like that. Many so called specialty funds with high fees claim that their fund outperforms but simply does not. How do you explain that? You have to do your research and pick out good funds regardless of the source.

Hi Paul,

Good point. I’m always fascinated by researching and picking good funds.

What makes you think it is a good fund? Is that return likely to be repeated, or was it just that it’s sector or strategy was in favour? Is it fund manager skill or luck? Does the fund have the same fund manager for the last 10 years?


Hi Ed,

To answer your questions,

Yes the same fund manger – Doug Warwick. The fund is TDB622.

I liked this fund for several reasons. It’s simple. The MER at 1.40 is not too bad (not everyone will agree). It is a fairly safe fund with a fair return. It pays a monthly dividend which purchases you new units automatically. No load. Doing a search on the internet it is recommended by different non related people and websites similar to this one. I read that it had one some awards over the years.

It has even won another award for 2011 (I just rechecked now) :

I have other investments as well but this is kind of my “Rock”.

Hi Paul,

Yes, TD is good at bond and income funds. This one had 25% higher return with 40% lower risk than the TSX since inception 12 years ago. Quite good.

The reason it has a higher return is that it did not make that massive Nortel error that the TSX made.At the peak, the TSX60 was 48% Nortel, which of course went to zero.

Diversification has always been a big problem with the TSX. Right now, it is essentially a resource sector fund and things have worked out so far. Ten years ago, it was essentially a technology sector fund. That worked great for a while and then went very wrong.

My issue is that it is 93% correlated with the TSX. Six of the top 10 are the same, which makes it a closet indexer.

Since 2003 (after the Nortel error of the TSX), it has had only 2/3 the return of the TSX. It is a more conservative version of the index, with 35% lower return and 40% lower risk.


Thank you

I appreciate you taking the time and presenting that information and viewpoint.

Hi Ed Rempel,
I am king of confuse about where to invest for RESP ?
1)TD e-series funds.
2) CET
3)Any other best RESP option

Can you please advise ?


Hi FrugalTrader,
Have you ever compare CET Vs TD e-series in terms of Return ?

In CET, you are also eligible to get that portion of government grants from those kids who don’t go to college.

Please advise.


In CET, Your money will go in pool of students. When some students don’t go for college so government grant for those students will be distributed among remaining students in the pool. That is something additional you receive if your kid go to college.

1) Your Money + Return on investment
2) Your government grant + Return on investment
3) Portion of other students ‘Govrnment grants + Return on investment’ only if your student go to college