What Is a Front-End Fee?

In actual operation, there are two ways to collect open-source fund subscription fees, one is called front-end fees, and the other is called back-end fees. The front-end charge refers to the payment method that requires the subscription / subscription fee to be paid when subscribing and purchasing funds.

Front-end charge

In practice, open-ended

1. What is front-end charging and what is it?

Suppose you choose to buy the same fund (or a and c of the same fund), the net value at the time of purchase is B, and the subscription fee rates are x (front-end charging mode) and y (back-end charging mode), assuming one-time investment And the investment period is n years, and the cumulative return rate at the end of the period is C, then the following formula can be used to judge:

C> (B * y) / x-1?

Following the example in the previous chapter, each parameter value is substituted into the calculation. Examples are:

B = 1, x = 0.6%, y = 1.5%, then (B * y) / x-1 = 150%; that is, it is more cost-effective to choose a back-end charge at the end of the period when the cumulative return rate is C> 150%;

B = 2, x = 0.6%, y = 1.5%, then (B * y) / x-1 = 400%; that is, it is more cost-effective to choose a back-end charge at the end of the period when the cumulative return rate is C> 400%;

B = 3, x = 0.6%, y = 1.5%, then (B * y) / x-1 = 650%; that is, it is more cost-effective to choose a back-end charge at the end of the period when the cumulative rate of return C> 650%;

In practice, we can further simplify to calculate by "annualized rate of return":

Assume that the proposed investment period is n years, the cumulative return rate at the end of the period is C, and the annualized return rate is m:

Annualized return rate m = Power (cumulative return at the end of the period C + 1,1 / n) -1;

Take the values of C in the above example, and calculate the examples according to the feeds:

If B = 1 and C = 150%, then m = Power (150%, 1 /)-1, and the annualized return corresponding to the investment period of 1 to 10 years is at least:

1 year: 150.00%; 2 years: 58.11%; 3 years: 35.72%; 4 years: 25.74%; 5 years: 20.11%; 6 years: 16.50%; 7 years: 13.99%; 8 years: 12.14%; 9 years : 10.72%; 10 years: 9.60%;

That is: if the target fund's net purchase value is 1, and the investment period is 10 years, the annualized return of this target fund must be above 9.6% to be suitable for choosing the back-end collection (purchase) fee mode.

The above is only a description of one-time investment. If the investment is fixed, for example, monthly, it can be judged according to the above-mentioned one-time investment calculation method every time it is invested.

Taken together: For funds with a net purchase value of 1, if the investment period is less than 10 years, the front-end collection (purchase) fee method is selected. Funds with higher net purchase value are more cost-effective to choose front-end charging methods.