“Load” mutual funds are those which have a fee structure that includes a front-end or back-end sales charge. All funds have expenses, but not all funds have loads.
Loads are sales charges that are part of the fee structure of a mutual fund. Each mutual fund will typically offer a few types of shares classes to its investors, and the main difference between the share classes are their fee structures. There are front-end loads, which come out of your initial investment and can be up to 5%.
These are part of A-Shares and Investor Class Shares, and these fund classes will typically have lower fees after the initial year than other share classes. Investor class shares are basically A-shares but with a lower initial investment amount required.
A-shares and Investor Class shares will offer breakpoint sales charge reductions, so if you invest enough within the fund family, you will play a lesser load, or potentially no front-end load at all.
There are also back-end loads, officially called contingent deferred sales charges (CDSC), which reduce the investor’s net if he or she sells the shares within a certain number of years.
These are typically built into B shares and C shares. C shares do have the option to charge a small front-end sales load, but this is not entirely common. B shares and C shares have higher annual fees taken out than A shares, but B shares will generally convert automatically to A shares after a time and enjoy their lower annual fees.
The annual fees that depend on the class-type are part of expenses but they are also a form of load known as asset-based fees or 12b-1 fees, named after the regulation that governs their use. They help the fund company pay for marketing and materials, as well as distribution costs which may include a small amount of broker compensation, like a residual commission.
There are other share classes which are generally part of institutional level investment packages that are redistributed to the investor in shares that are labeled with a wide variety of names, such as R1, and have fee structures unique to that arrangement.
These might be found in a 401(K) plan, for example. These share classes do not have loads in the conventional sense, but the plan design may have passed fees on to the investors in another form.
Mutual funds come in many varieties, but here are some basics to keep in mind to help you find your way
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