Load Fund
A load fund is a mutual fund that comes with a sales charge or commission. The load is either paid upfront at the time of purchase (front-end load), when the shares are sold (back-end load), or as long as the fund is held by the investor (level-load). A load fund entails mutual fund shares that carry a sales commission paid by the fund purchaser. Class A shares are the traditional front-end load funds that charge an upfront sales charge on the amount invested. Class B shares include a back-end load or contingent deferred sales charge (CDSC), which is deducted when selling the shares.
What Is a Load Fund?
A load fund is a mutual fund that comes with a sales charge or commission. The fund investor pays the load, which goes to compensate a sales intermediary, such as a broker, financial planner, or investment advisor, for his time and expertise in selecting an appropriate fund for the investor. The load is either paid upfront at the time of purchase (front-end load), when the shares are sold (back-end load), or as long as the fund is held by the investor (level-load). Load funds may be contrasted with no-load funds, which do not carry a sales charge.
Understanding Load Funds
If a fund limits its level load to no more than 0.25% (the maximum is 1%) it can call itself a "no-load" fund in its marketing literature. Front-end and back-end loads are not part of a mutual fund's operating expenses and are typically paid out to the selling broker and the broker-dealer as a commission. However, level-loads, called 12b-1 fees, are included as operating expenses. Funds that do not charge a load are called no-load funds, which are typically sold directly by the mutual fund company or through their partners.
Investors may automatically assume no-load funds are the better choice over load funds, but that may not be the case. Fees on load funds go to pay the investor or fund manager who does research and makes investment decisions on the client's behalf. These experts can sort through mutual funds and help investors make smart investment decisions they may not have the skill or knowledge to make on their own. Paying upfront fees can also eliminate the need to sap investment returns by paying continual expense fees on the returns the fund achieves.
The main disadvantage, of course, is the load itself. No-load mutual funds now exist as options that carry no sales charge.
In the 1970s, mutual fund companies came under criticism for the high front-end sales loads they charged along with excessive fees and other hidden charges. As a result, they introduced multiple share classes giving investors several options for paying sales charges.
Related terms:
12B-1 Fee
A 12b-1 fee goes toward paying for marketing, distribution and other expenses a mutual fund incurs. read more
Back-End Load
Back-end load refers to the money a mutual fund charges to a client for withdrawing money. read more
Contingent Deferred Sales Charge (CDSC) Fee Explained
A contingent deferred sales charge (CDSC) is a fee, or sales charge or load, which mutual fund investors pay when selling Class-B fund shares. read more
Classified Shares
Classified shares are different classes of common stock, each with different voting rights, ownership rights and dividend rates. read more
Class C Share
Class C-shares are classes of mutual fund shares that carry annual administrative fees, set at a fixed percentage. However, unlike other share classes, they do not carry sales charges when they are bought or when they're sold after a certain period. read more
Financial Planner
A financial planner is a qualified money-management professional who helps clients meet their financial goals. read more
Level Load
A level load is a percentage-based annual fee on an investor's mutual fund holding to cover distribution and marketing costs. read more
Load
A load is a sales charge commission charged to an investor when buying or redeeming shares in a mutual fund. read more
Load-Waived Funds
Load-waived funds are a type of mutual fund in which investors don't have to pay certain fees they otherwise would, such as front-end loads. read more