Don't pay Front-End Load

Avoid paying commissions, and let your money work for you

If you have read through where do I invest, you would have figured that mutual funds are a good option to get started. The trick is to pay minimal, or no commissions at all, no matter what anyone says. It’s your money — you should maximize the returns for that. And if you want to do that, might as well subscribe:

Personal anecdote. I went to the branch of a Bank, which was also selling mutual funds for its associated Asset Management Company. The branch manager was forcing me to sign-up for a fund without disclosing how much commission he will be charging, or he will be receiving. He was downright aggressive, similar to those fellows selling bancassurance, and trapping people who don’t know better in horrible schemes. When I told him that I will not be paying a single rupee as a front-end load, he refused to open my account — so much for customer service, or cross-sell.

An ordinary person does not even know what a ‘Front-End Load’ is — here is a quick primer.

A ‘Front-End Load’ is simply a commission that the company which manages the fund charges as a commission for selling you the fund. Normally, it is in the range of 1-2%. Let’s say if you invest PKR 1 million — whoever is selling you the fund, can pocket PKR 20,000 of this — and PKR 980,000 gets invested. Why should you give up on the 2% anyway, when the only service the person charging you commission is providing is filling up your form. Skip it.

How do you avoid it? Download forms directly from the website of an Asset Management Company, and get in touch with them directly. Fill up your own forms. It takes some effort but saves you money. Clearly say NO to paying any front-end load, or commissions.

Asset Management Companies already charge hefty fees, and other expenses to the fund itself — so much so that funds continue to underperform in many cases. Why should an ordinary investor pay any commissions upfront, when no value-added service is being provided?

If someone gets too pushy, politely decline. Most investments in mutual funds or insurance policies are made because of pushy sales personnel — don’t let them pressurize you. You are in charge of your own money — do not let anyone push you into making a bad investment.