| If you see the letters 'DSC' next to a Canadian | | | | 2.5-3.0%. So assuming a fee at the low end of |
| mutual fund that you own, you can rest assured | | | | 2.5%, the fund company makes $250. It then |
| that you are getting hosed...'DSC' refers to | | | | makes another $500 from the deferred sales |
| Deferred Sales Charges or fees that an investor | | | | charge. |
| has to pay over and above the actual und's | | | | All in, the fund company makes $750. Not a bad |
| management fee. | | | | pay day for a fund that just underperformed the |
| A deferred sales charge is a "penalty" that the | | | | market. |
| investor has to pay if and when the investor | | | | Of course, the investor could limit his losses by |
| decides to withdraw his/her money. Often it can | | | | keeping his funds invested with the mutual fund |
| be as much 6% of the original amount of the | | | | company. In this way, he would save the $500 in |
| investment. | | | | deferred sales charge. That would make the fund |
| For instance, take an investor who buys $10,000 | | | | company very, very happy. Indeed, the fund |
| of a mutual fund with a deferred sales charge. | | | | companies are counting on it. They know that |
| Let's say, the market as a whole does well over | | | | most investors are unlikely to move their |
| the course of a year but this particular fund loses | | | | investments out if they are forced to pay a |
| 10%. Not surprisingly, the investor wishes to | | | | penalty. |
| withdraw his money due to the fund's poor | | | | It really is quite incredible that the big banks are |
| performance. If the investor withdraws his | | | | able to get away with this kind of unethical |
| money, he will be hit with a penalty and his | | | | behaviour. In fact, many funds sold by bank |
| investment will be further depleted upon | | | | financial advisors fall into this category. |
| withdrawal. Assuming a 5% penalty on the original | | | | Unfortunately, the average investor just does not |
| investment, the investor is left with $8,500 or a | | | | know where to look for pricing information. It |
| loss of $1,500. | | | | certainly is not well publicized by the fund |
| Interesting enough, while the investor winds up | | | | companies for obvious reasons. And |
| with a loss of 15%, the fund company actually | | | | unfortunately, our Canadian government has no |
| does quite well. First, over the course of the year | | | | interest in exposing the mutual fund industry for |
| it earns a management fee. In Canada, the | | | | what it is, unlike Australia or Britain where mutual |
| average management fee for mutual funds is | | | | funds are much better regulated. |