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Mutual Funds - Sales Charges

Among other distinguishing features, mutual funds are acquired with a sales charge (load) or without a sales charge (no load). If there is a load, the charge can be as high as 8%, although it seems that a 3 to 5.75% range is most common. This charge is paid by the investor (the buyer of the fund) to the seller (a financial intermediary such as a brokerage firm, insurance company, financial planner or investment advisor) for services rendered. The charge is deducted from the amount being invested.

No-load mutual funds are offered directly to the investing public by fund companies, or they are sold to investors by financial intermediaries who have a compensation arrangement (hourly, flat fee or a percentage of assets) with the purchaser. In this case, a sales charge is not involved and the investor fully invests his or her available money into funds sponsored by a no-load fund company.

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There are five general aspects of the load/no-load debate worth considering:

1. Fund investors need to understand that a load is a selling commission paid to a financial intermediary and not the fund company. It does not buy increased investment expertise by fund management. On the other hand, financial intermediaries defend their fees as fair compensation for the investment advisory services they provide to the investor.

2. The load-fund business has complicated things for investors by confusing them with a variety of fund share classes: A, B and C. In brief, these simply represent three different ways of applying a sales charge. With A shares you pay up front and with B shares you pay at the back end. With C shares, called "level-load," the year-to-year costs are usually high, but spread out over time.

3. A fund's load is not included in the computation of a mutual fund's expense ratio (see below) and, therefore, is an additional cost to be considered when investing in load funds.

4. The long historical record on mutual funds shows that there is little difference in the total return performance of load and no-load funds.

5. Employee participants in a defined-contribution, company sponsored retirement plan, such as a 401(k), generally need not be concerned about loads. In most instances, these retirement plans waive any sales charges on their fund investment options.

Expense Ratio


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RELATED TERMS
  1. No-Load Fund

    A mutual fund in which shares are sold without a commission or ...
  2. Load Fund

    A mutual fund that comes with a sales charge or commission. The ...
  3. Front-End Load

    A commission or sales charge applied at the time of the initial ...
  4. Sales Charge

    A commission paid by an investor on his or her investment in ...
  5. Back-End Load

    A fee (sales charge or load) that investors pay when selling ...
  6. Level Load

    An annual charge deducted from an investor's mutual fund assets ...
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    Find out how no-load mutual funds make money, what the purpose of a sales charge, or load, is and why some funds have higher ... Read Answer >>
  3. What's the difference between a load and no-load mutual fund?

    A mutual fund is simply a large group of people who lump their money together for a management company to invest. And, like ... Read Answer >>
  4. What do the different types of mutual fund classes mean?

    When checking for different quotes on mutual funds, you might see different prices for classes of mutual fund shares that ... Read Answer >>
  5. What is the difference between a no-load mutual fund and a fund that has no front ...

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