What is a 'Sales Charge'
A sales charge is 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.
BREAKING DOWN '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.