We bought $5000 worth of the Dreyfus Index Fund (DGAGX) back in the middle of May via our Charles Schwab investment account. The gains for this particular fund which is exclusively invested in the Dow 30 have been OK. The quarterly dividends produced a nice return for us and we are content with the investment so far.
I want to point out something that any mutual fund investor should be very aware of. If you read the below screen shot detailing Fund Fees and Expenses, you will note the phrase “Short-term Redemption Fee”. The Yes that you see next to the phrase indicates that DGAGX has a 90 day Short-term redemption fee. What does it mean to have a redemption fee? In this particular case, if you attempt to sell any of the shares prior to holding the fund for at least 90 days, you will be charged $49.95.
Since we bought DGAGX in the middle of May that means we have to wait til the middle of August to avoid being charged a short-term redemption fee.(a wait period of 3 months) I did not know that when we initially purchased this particular Dreyfus fund. They were up front about it as you can see from the fund strategy screen shot, I just wasn’t paying attention. We are buying a brand new home in mid September and hope the fund grows so we can use it to help out on our down payment. We are making sure our down payment is well over 20% to avoid the dreaded PMI(Private Mortgage Insurance) which jacks up your monthly mortgage payment.
What is PMI? PMI protects lenders against borrowers who might be getting in over their head. The theory goes that if a borrower can not afford a substantial down payment, then their risk of defaulting on the loan is much higher. Makes sense and you can avoid paying PMI by putting 20 per cent down or more. Having PMI allows a stretched out home purchaser to finance more home than they can afford! Be Careful!
Finally do not confuse transaction fee with redemption fee. A transaction fee is something you pay when you buy or sell a fund. A redemption fee is based on a period of time in which you will be penalized if you sell the fund. If you sell after the time period is up, then you will incur no charges!