In practice, there are two ways for open-end funds to collect subscription fees, one is called front-end fee, and the other is called back-end fee.
Fund front-end refers to the payment method for investors to pay subscription fees when they buy open-end funds. Back-end fund refers to the payment method that investors do not pay the subscription fee when they buy open-end funds, but only pay when they sell them.
The back-end fund is to encourage investors to hold the fund for a long time, so the rate of the back-end fund will generally decrease with the increase of holding time. Some funds even stipulate that if investors can hold the fund for more than a certain period of time before selling, the back-end fee can be completely exempted.
When buying a fund, you can try to choose the back-end charging method. Because in the back-end charging mode, the longer you hold the fund, the lower the charging rate, which is generally reduced by 20% every year until it is zero. Therefore, when preparing to hold funds for a long time, choosing the back-end charging method is conducive to reducing investment costs.
The front-end charging rate is linked to the investment amount, and the higher the investment amount, the lower the rate; The rate of back-end charges is linked to the holding time, and the longer the holding time, the lower the rate. In fact, front-end charging and back-end charging are two different charging modes, each with its own advantages and disadvantages. Moreover, these two charging models are suitable for different investment needs, and we can't say which one is better in general.
In fact, it is not difficult to see that the back-end fund model is to encourage investors to hold funds for a long time. The longer the time, the lower the charge.
To sum up, the difference between the two is mainly reflected in when to pay the subscription fee. The front end of the fund is paid at the time of subscription, and the back end of the fund is paid at the time of redemption.
If you are sure that the foundation in hand will be held for a long time, usually more than two years, then choosing the back end of the fund will get higher returns.
Fund companies provide back-end fee options for everyone to hold as long as possible to ensure the smooth operation of securities.