Investors should be aware of all mutual fund charges, especially mutual fund loads, or sales fees. A load is a sale fee that a fun charges against your investment. Funds charge loads in addition to other expenses. Loads benefit a broker, sales agent or fund’s management company and are direct expenses to the investor. The Securities and Exchange Commission limits fund companies from charging more than an 8.5 percent load.
There are three different types of loads: front-end loads, back-end loads and level loads.
Funds with front-end loads are known as Class A shares. A front-end load comes directly out of your check at the time of investment. An investment of $10,000 with a 5 percent front-end load means that only $9,500 is actually being invested.
The balance of the load is commissions paid to the registered representative, investment planner, insurance agent or other. A fund can offer front-end loads on a sliding scale, depending on the amount of the investment. Frequently, large and institutional investors get a break on the load percentage if they invest a certain amount at one time.
A back-end load may also be called a contingent deferred sales charge. It usually decreases as continue to hold the fund, zeroing out after a set number of years to reward long-term investors. Such shares are called Class B shares, and can usually be converted to Class A shares. Level-load shares are called Class C shares. These funds continue to assess a level load for as long as you own the fund. For a long-term investor, a level load can end up costing more over time than a front-end or back-end load.
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