Sales Charge

AAA

DEFINITION of 'Sales Charge'

A commission paid by an investor on his or her investment in a mutual fund. The sales charge is paid to a financial intermediary (broker, financial planner, investment adviser, etc.) for selling the fund and is intended to provide compensation for the financial salesperson's efforts in assisting clients in selecting the mutual funds best suited to their needs.

INVESTOPEDIA EXPLAINS 'Sales Charge'

A large number of mutual funds carry sales charges. The amount of a sales charge represents the difference between the purchase price per share paid by the investor and the net asset value per share of the mutual fund. By regulation, the maximum permitted sales charge is 8%, but most loads fall within a 3-6% range.

With funds that carry a sales charge, there are three classes of shares: A, B, and C. The letter designations indicate the timing of when the charge is paid. For Class A shares, the sales charge is paid at the time of purchase (front-end load). For Class B shares, it is due when the shares are sold (back-end load). Class C shareholders incur a sales charge on a regular basis for as long as they hold the fund.

RELATED TERMS
  1. Periodic Payment Plan Certificate

    A certificate representing ownership interest in a periodic payment ...
  2. Periodic Payment Plan

    A type of investment plan, often sold to military personnel, ...
  3. Commission

    A service charge assessed by a broker or investment advisor in ...
  4. Net Asset Value - NAV

    A mutual fund's price per share or exchange-traded fund's (ETF) ...
  5. Front-End Load

    A commission or sales charge applied at the time of the initial ...
  6. Open-End Fund

    A type of mutual fund that does not have restrictions on the ...
RELATED FAQS
  1. How do no-load funds typically perform relative to load funds?

    No-load mutual funds are pooled investments that do not carry an upfront sales charge when purchased or a deferred sales ... Read Full Answer >>
  2. What information should I focus on in my mutual fund's prospectus?

    The U.S. Securities and Exchange Commission (SEC) requires investment companies to provide potential and current investors ... Read Full Answer >>
  3. Why would a person choose a mutual fund over an individual stock?

    There are a number of reasons why an individual may choose to buy mutual funds instead of individual stocks. The most common ... Read Full Answer >>
  4. What does Value at Risk (VaR) have to do with maximization of shareholder wealth?

    By enabling investors to estimate with high probability the worst-case and best-case scenarios for the performance of a given ... Read Full Answer >>
  5. How can I calculate the tracking error of an ETF or indexed mutual fund?

    Calculate the tracking error of an indexed exchange-trade fund (ETF) or mutual fund by doing a standard deviation percentage ... Read Full Answer >>
  6. What is the difference between fee-only advisors and fee-based advisors?

    “Fee-only” and “fee-based” sound similar, but there are important differences between these types of financial advisers. ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    An Introduction To Closed-End Mutual Funds

    If you're looking to generate income for your investments, look no further.
  2. Mutual Funds & ETFs

    Mutual Funds Are Awesome - Except When They're Not

    This investment is very popular, but that doesn't mean it comes without risk.
  3. Mutual Funds & ETFs

    Mutual Fund Basics Tutorial

    Learn about the basics - and the pitfalls - of investing in mutual funds.
  4. Professionals

    Understanding Series 6

    Upon successful completion of the Series 6, an individual will have the qualifications needed to sell open end mutual funds and variable annuities
  5. Fundamental Analysis

    How to Calculate a Turnover Ratio

    A turnover ratio measures a mutual fund’s level of trading activity in a given time period, usually a year.
  6. Mutual Funds & ETFs

    Safest Industries To Invest In

    Which are the safest industries and sectors for long-term investment and why?
  7. Bonds & Fixed Income

    How Are Zero-Coupon Municipal Bonds Taxed?

    What every investor needs to know about taxes and zero-coupon muni bonds.
  8. Mutual Funds & ETFs

    Top 4 ETFs That Will Help Diversify Your Portfolio

    Seeking low cost diversification to high quality stocks and bonds? Consider these 4 ETFs.
  9. Bonds & Fixed Income

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  10. Mutual Funds & ETFs

    Mutual Funds or ETFs: Which is Better?

    Trying to decide between a mutual fund or ETF? Here's what you need to know.

You May Also Like

Hot Definitions
  1. Fracking

    A slang term for hydraulic fracturing. Fracking refers to the procedure of creating fractures in rocks and rock formations ...
  2. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  3. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  6. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
Trading Center