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Load (Mutual Fund) Definition
A load is a sales fee paid by an investor when purchasing or redeeming shares in a mutual fund. This fee is divided into front end loads and back end loads, they are structured differently. Mutual fund company decides the fee to be deducted by the fund intermediaries when a mutual fund transaction occurs.
A Little More on What is Load
Mutual fund companies decide the amount of commission an intermediary deserves by assisting in the distribution of mutual fund shares. This commission is referred to as the load. Mutual fund companies decide the commission based on share class and provide the necessary knowledge in their prospectus. Loads are decided by the mutual fund company and they vary by share class.
Loads are subdivided into a level, front end, and back end. In Front end and back end loads, the net asset value calculations (NAV) does not include loads because investors directly pay these charges(loads) to the intermediaries involved.
Front end load is estimated to be 5.75% at its max, this load is paid when investors buy the fund. This load is associated with A-share classes.
Back end load is paid when an investor sells the mutual fund, this load is associated with B shares or C-shares. The back end load decreases over time.
You can check the ABCs of Mutual Fund Classes for more information on share class load comparisons.
Other Fund Expenses
Investors pay a yearly operating fee, this makes up the net asset value of their funds. An amount is paid to cover the fund’s operating expenses, this is the 12b-1 fee, also called a level-load fee. This fee is paid by the mutual fund to the intermediary yearly and marked as the share class assets percentage. Any amount paid to an intermediary for distributing shares is referred to as the load.
Examples of these annual operating fees are the Principal Equity Fund offering her investors A, C, and I shares. The A-share class is smaller but higher in the front end compared to the C-shares at 0.25% The A shares charged 5.50% at the front end while at the back end 1.00% sales fee. The C shares only have a back end of 1.00% and finally, these two shares possess a 12b-1 level-load with the fund’s operating expenses added.
Investors may also be charged as a result of transaction costs from other investors who invested only for a short period of time or if an investor demands withdrawal within 30 days from their initial investment. These fees charged are referred to as redemption fees. These fees are not loads because it is not paid to an intermediary but as compensation.
Sales Load Considerations
Investors can evade sales charges either investing in mutual funds through their retirement plan or buying/selling mutual funds through a brokerage platform. The sales charge is a certain amount of money agreed upon by the mutual fund company and the intermediaries paid by the investors.
There are certain load discounts that come as a result of how large the investment of an investor is, these discounts are stated in the fund’s prospectus. In other words, most mutual funds offer breakpoints, rights of accumulation and letter of intent options with sales load discounts.
References for “Load”