What is a 'Load Spread Option'

A load spread option is a method of collecting the annual fees from investors in load funds through periodic deductions. This is sometimes also referred to as a spread load contractual plan. While the investor can always opt to pay the fees in one lump sum, this provides an alternative that allows for the fees to be broken up into smaller amounts.

BREAKING DOWN 'Load Spread Option'

A load spread option is a fee-collecting process that relates to charges imposed by load funds, which are mutual funds that impose sales charges or commissions. Load charges can be categorized as:

  • Front-end: charged at the time of initial purchase
  • Back-end: charged when shares are sold
  • Level-load: ongoing fees charges as long as the investor continues to maintain an interest in the fund

Front-end and back-end charges are not considered part of the fund’s normal ongoing operating expenses, but level-load charges are. The investor is responsible for covering these charges, which are known as the load. The load fees are paid to a middleman who serves as an intermediary, such as a broker or investment advisor.

Utilizing a load spread option allows the fund to spread out the required fees and charge them in pre-determined periodic intervals. These periodic deductions often are taken off of regular investor contributions to the fund to spread out the burden of the load fees over time.

Advantage of Load Spread Option

Load spread option is an approach that allows a load fund to spilt up fees due by investors, to provide a payment option that is more manageable for the investor to incorporate into their financial strategy. This offers the investor a way to satisfy required fees in a plan that is more budget-friendly and allows for long-term planning.

This system is designed to help reduce the initial obligation that the investor must pay upfront when establishing their account or making the first investment.

With a load spread option, a mutual fund investor is able to contribute a fixed amount of savings to the fund on a periodic basis, often tied to certain milestones or events, such as after each employment paycheck. The investor can then avoid the more imposing burden of having to pay a large lump-sum load fee each year, since a portion of the fee is paid with each contribution. The load fees may be satisfied in the form of taking a certain percentage or amount as a deduction from the investor’s periodic regular fixed payments.
 

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