Quote:
Originally Posted by nmhen
Here's the thing with CDSCs in lieu of up-front loads.
With a share class where you pay the load, I'm getting paid right up front.
With a share class where you don't pay an up-front load, but there is a CDSC in place, I may never get paid (typically if you hold one of those share classes for long enough the CDSC expires).
Again, I am not running a charity. So I'm going to get paid one way or another in every situation.
The x-factor here is expenses. A fund charges shareholders essentially a management fee every year. But we are allowed to tier it differently for different share classes. So on the share classes where we get paid up front in the form of a load, we charge the smallest expense fees. But on the share classes where we don't charge an up-front load - even if there's a CDSC in place - we charge much higher expense fees.
To wit:
The Oppenheimer Global fund's A-share (up-front load, no CDSC) expense ratio is 1.08% The C-share's (no up-front load, CDSC in place) expense ratio is: 1.84%.
The 5-year average annual total return (as of 6/30/07) for the A-share is: 15.65%. For the C-share it is: 14.77%.
It may still be better for you than paying the load, but there is a misconception out there that deferred charge classes/funds are free.
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As an addendum: the power of compounding favors the up-front load share classes over a long time frame. Let's say the no up-front load class ends up costing you 50 bps more than the up-front load class.
So if you grow the $942.50 part at 7% a year, and the $1000 part at 6.5% a year, the cumulative totals start to favor the $942.50 part after 13 years.
After 13 years, the $942.50 part growing at 7% a year has become $2271.28. After 13 years, the $1000 part growing at 6.5% a year has become $2267.49.
After 30 years, the $942.50 part has grown to $7174.55 while the $1000 part has grown to $6614.37.