What is the difference between load funds and no-load funds?
No-load funds do not charge sales commissions. No-load funds are generally the funds sponsored by banks or trust companies, or from mutual fund companies which are direct sellers to the public. When you purchase a no-load fund from a broker, you may be charged an administration fee to handle the transaction.

Load funds charge sales commissions, and are divided into front load and rear load (deferred sales charge or DSC) funds. Front load is a sales charge that you pay when you purchase the fund. The sales charge or commission may vary depending on the fund and on which institution you are buying the fund from.

With a rear load fund you pay a sales charge when you sell units of the fund. It generally starts at about 6 or 7 % for the first year and declines to nothing as you hold the funds through a number of years, generally six or seven years.

The load structure does not affect the performance of the funds as reported by the fund company. It does, however, affect your personal return on investment since a front load reduces the amount you have to invest and a rear load reduces the accumulated value of your investment. There are both excellent and mediocre no-load funds as there are excellent and mediocre load funds.

Are there other costs associated with mutual funds? What are MERs?
Both no-load and load funds have ongoing management fees and general operating expenses. Management fees are paid to the fund manager for portfolio management and administrative services. In addition, general operating expenses cover expenses such as brokerage commissions, securities filing fees, custodian fees, legal fees, etc.

Since some funds may pay all expenses out of the management fee while others may charge certain expenses directly to the fund, in order for you to directly compare the expenses different funds, use the MER or Management Expense Ratio. MER is the total of the management fees and operating expenses (excluding brokerage commissions and taxes) and is expressed as a percentage of the fund's average daily assets. When a mutual fund's performance is reported in any publications, the performance number reported has been calculated after the deduction for the MER.

Before you purchase any mutual fund, the MER is an important figure to consider. Over time, it can impact your overall portfolio return. For example, you invested $1,000 in a fund for 15 years and you received an annual rate of return of 8% after expenses. You would end up with roughly $3,172. If the MER was1% higher, you would have received an annual rate of return of 7% after expenses, hence you would end up with roughly $2,759. This difference between $3,172 and $2,759 means your total return was 15% lower with the higher MER.

In general, MERs of equity funds in Canada tend to range from 2 to 2.5%. Fixed-income funds have lower MERs and tend to be under 1.5%. MERs are always disclosed in the fund's prospectus.