Load

A load is a sales charge commission charged to an investor when buying or redeeming shares in a mutual fund. Sales charge commissions can be structured in a number of ways. They are determined by the mutual fund company and charged by mutual fund intermediaries in mutual fund transactions. Common types of sales charges include front-end loads and back-end loads.

A load is a sales charge that compensates an intermediary for distributing shares of a mutual fund. Loads vary by share class and are determined by the mutual fund company. Mutual fund companies structure sales charges by share class. They provide a sales charge schedule in the mutual fund’s prospectus.

Loads can be front-end, back-end or level. Front-end and back-end loads are paid directly to intermediaries by the investor and are not accounted for in the fund’s net asset value (NAV) calculations.

Front-end load – Front-end loads are typically associated with A-share classes. This sales charge occurs when the investor buys the fund. Front-end loads can range up to approximately 5.75%.

Back-end load – Back-end loads can be associated with B-shares or C-shares. The back-end load is paid when an investor sells the fund. In class B-shares, the back-end load is typically contingent deferred which means it decreases over time.

For more on share class load comparisons see also The ABCs of Mutual Fund Classes.

Any type of payment to an intermediary for distribution services can be considered a load. Mutual fund investors pay annual operating expenses which are accounted for in the fund’s net asset value. A portion of the fund’s operating expenses may include a 12b-1 fee, also called a level-load. This fee is paid by the mutual fund to the intermediary annually and is quoted as a percent of a share classes assets.

For example, the Principal Equity Income Fund offers investors A, C and I shares. The A-shares have a front-end sales charge of 5.50% and a back-end sales charge of 1.00%. The C-shares have no front-end sales charge and a back-end sales charge of 1.00%. Both share classes have a 12b-1 level-load included with the fund’s operating expenses. The A share class pays a smaller level-load than the C-shares at 0.25% since it offers higher front-end load compensation. The C share class charges a level-load of 1.00%.

Investors may also incur redemption fees. Redemption fees are not paid to intermediaries and therefore are not considered to be a load. These fees are charged on the back-end and help to compensate the fund for transaction costs incurred from short-term investors. Redemption fees may be charged if an investor redeems shares within 30 days to a year from their initial investment.

Sales charges are commissions agreed upon between mutual fund companies and intermediaries. They are typically charged by full service brokers and mutual fund distributors. Investors can potentially avoid sales loads by buying and selling mutual fund shares through a discount brokerage platform. Oftentimes, investors can also avoid sales loads by investing in mutual funds through a retirement plan.

Most mutual funds offer breakpoints, rights of accumulation and letter of intent options with sales load discounts. These discounts are associated with larger investments in the fund and are outlined in the fund’s prospectus.