“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.
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