DEFINITION of 'Load-Adjusted Return'

A load-adjusted return is the investment return on a mutual fund adjusted for loads and specific other charges, such as 12b-1 fees. Loads, or fees charged by some mutual funds for marketing or buying and selling shares, are like all other investment fees in that they have a significant effect on an investor's returns.

BREAKING DOWN 'Load-Adjusted Return'

A load-adjusted return is how much of a return an investor sees. This is calculated after investment fees charged to buy and sell shares of mutual funds are subtracted from investment returns. If an investor puts $6,000 into a no-load mutual fund and earns a 10 percent return the first year, he has earned $600 if he decides to cash out. But if the mutual fund charges a 1 percent front-end load to buy shares, the investor would lose $60 when he purchased, leaving $5,940 to invest. The same 10 percent return would then earn him only $594.

Active Funds and Load-Adjusted Return

Index funds do not charge a fee just to invest in their funds. Actively managed mutual funds do charge investors a fee, commonly referred to as front-end load, just to invest in their funds. Some actively managed mutual funds charge other types of fees, such as back-end loads or marketing and distribution fees, that may or may not apply depending on whether an investor withdraws all or part of their investment in the fund before a specified period.

Many investors advocate sticking to mutual funds that have no loads, no 12b-1 fees and low expense ratios.

Index Fund Fees and Loads

An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover. These funds adhere to specific rules or standards (e.g., efficient tax management or reducing tracking errors) that stay in place no matter the state of the markets.

Investing in an index fund is a form of passive investing. The primary advantage of such a strategy is the lower management expense ratio on an index fund. Since expense ratios are directly reflected in the performance of the funds, actively managed funds and their higher expense ratios are automatically at a disadvantage to index funds. As a result, many actively managed funds struggle to keep up with their benchmarks. For the five-year period ending in 2015, 84 percent of large-cap funds generated a return less than the S&P 500. In the 10-year period ending in 2015, 82 percent of large-cap funds failed to beat the index.

RELATED TERMS
  1. Level Load

    An annual charge deducted from an investor's mutual fund assets ...
  2. Load Fund

    Load funds charge fees of less than 1% in order to compensate ...
  3. Hidden Load

    A hidden load is an undisclosed fee or sales charge, which is ...
  4. Front-End Load

    A front-end load is a charge that an investment fund requires ...
  5. No Transaction Fee Mutual Fund

    A no transaction fee mutual fund is a mutual fund with no associated ...
  6. Deferred Load

    A deferred load is a sales charge or fee associated with a mutual ...
Related Articles
  1. Investing

    The Lowdown on No-Load Mutual Funds

    No-load mutual funds let you cut out the middleman—and the fees.
  2. Investing

    Trading mutual funds for beginners

    Learn the basics about mutual funds, including the types of strategies available and the different fees they may charge.
  3. Investing

    4 Expensive Mutual Fund Mistakes to Avoid

    Mutual funds are a good way to balance your asset allocation but there some potentially expensive pitfalls investors need to be aware of.
  4. Investing

    Etfs or Mutual Funds for Your Ira?

    Most actively managed mutual funds fail to beat the market over a long period of time, so it's probably best to go with ETFs for your IRA.
  5. Investing

    Are Mutual Funds A Relic?

    We list some options other than mutual funds for your retirement plan.
  6. Investing

    When To Sell A Mutual Fund

    It can be tempting to sell an underperforming mutual fund, but there are a few key factors to consider before jumping ship.
  7. Investing

    How to Choose Between Mutual Funds and ETFs

    Mutual funds and ETFs are both investment funds, but they are not as similar as you might think.
RELATED FAQS
  1. How does a no-load fund make money?

    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 >>
Trading Center