What is a Load?

A load is a sales charge paid by mutual fund investors to brokers or agents who sell the fund to them. A mutual fund load is a percentage of the dollars invested, and can range from 0% to 8.5%, or more. Loads are of two types: front-end loads, and back-end loads.

Front-end Loads

Front-end loads, also known as sales charges, are charged to the investor when a mutual fund is purchased. This fee is paid to the broker or agent for selling the fund. In exchange for the brokerage fee, the investor gets fund advice along with the investment. Front-end loads can range from 0.25%, all the way to 8.5%. The lower the sales load in a particular fund, the lower its net expense ratio.

Back-end Loads

Back-end loads, also known as redemption fees or deferred sales charges, are incurred when the investor sells their fund shares. These load amounts usually start out high and then taper off over time – often to zero after 10 years or more have passed. Back-end loads can range from 0.5% to 6%. The long-term effect of back-end loads would look something like this:

No-Load Funds

No-load funds are mutual funds that are sold without commissions or loads, offering investors the lowest cost of entry. No-load funds are typically sold directly to investors by the fund company or one of its partners, and they may also be sold through no-load brokers. No-load funds are increasingly popular due to their lower costs, and typically have a net expense ratio of 1% or less.

In conclusion, mutual fund investors need to be aware of the different types of loads when making their investments. While front-end and back-end loads can mean lower net expense ratios and the possibility of fund advice, no-load funds offer the lowest cost of entry for investors. Ultimately, the choice between load days and no-load funds will depend on the individual investor’s specific investment objectives and financial goals.