Is this a bad idea?

[Akatani]

A co-worker was telling me about her investments - and from everything I have read, it sounded like a bad idea.
She had no clue and she had just picked what a rep had suggested at Mizuho. She bought into a fund called Brazil Bond Open.
http://www.morningstar.co.jp/FundData/S ... 2008112601

So there's front loading (3.24%) and a high running cost (1.45%), so I told her, wow, that's a bad idea! But then she told me about all the dividends she was getting every month - currently it's down at 7.48%. 1,000,000yen investment would get dinged 32,400yen, leaving 967600yen. Dividends are listed as 40yen for every 10,000, so she gets 3870/month x12 = 46,444/year. ( I think my math might be wrong as that's not 967600 x 7.48%). Anyways, she's paid back the front loading fee in the first year, and will be making more on dividends (even with the high cost) than say tyo:1550

Why is this fund a bad idea? It seems like the dividends you make make up for the front loading fee and the high monthly fees. When she first started the dividends were way higher, but even now that they're down, it still looks profitable.
Thoughts?

[RetireJapan]

Hmmm. It's made up exclusively of Brazil government bonds paying 10%.

I'm guessing it isn't hedged? So if the yen goes up and the real goes down the dividends will be worth less? Is there a default risk? Inflation in Brazil is supposed to be 2.5% at the moment.

Not sure why government bonds would pay that much. I wonder if there is a way to own them without paying the horrendous fees?

[Jamo]

The dividends look enticing but if you look at the overall return it's not great (8.75% in the past 5 years), especially if you're not reinvesting your dividends.

Take a look at this chart for a longer term picture. Also, I'm not sure if the graph subtracts the running costs and taxes. Probably not...

Orange = standard price
Dark blue line = overall return (no dividend reinvestment)
Light blue line = overall return (with dividend reinvestment)

[Roman Empire]

It seems like a risky bet because of potential currency fluctuations, the unstable political climate in Brazil and other unforeseen upheavals. I don't think the sales rep or securities company deserves to earn such a huge upfront sales fee for recommending a risky fund such as this one. In Japan, monthly income funds are often bought by elderly investors looking to spark joy from getting a monthly payment. But those funds most often aren't really suitable for building up assets over a longer period of time in a stable manner. Was there a specific reason why your co-worker thought it'd be best to invest into a monthly income fund?

[Akatani]

My coworker didn't know anything at the time and it was just what was 'suggested' to her. "You'll make back the initial fee almost immediately". At the time she was making dividends of 120yen for every 10,000. It's gone down in recent years to 40yen.