Load Fund
A load fund is a mutual fund that comes with a sales charge or commission. Investors pay this fee when they buy and/or sell shares in the fund. The purpose of the sales charge, also known as the load, is to compensate brokers, financial advisors, or sales representatives for their advisory services. Load funds are typically sold by brokerage firms or other financial institutions.
Types of Loads
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Front-End Load: This is a sales charge that investors pay at the time of purchase. It is a percentage of the amount invested in the fund.
- Example: If you invest $10,000 in a mutual fund with a 5% front-end load, $500 will go to the sales charge, and the remaining $9,500 will be invested in the fund.
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Back-End Load (Deferred Sales Charge): This fee is charged when shares are sold. It typically decreases the longer an investor holds the fund’s share.
- Example: If you sell shares worth $10,000 in a mutual fund with a back-end load of 5%, you would pay $500 if sold immediately. However, if the fee decreases over time, selling after several years might reduce or eliminate the fee.
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Level Load: This involves annual fees taken as a percentage of the fund’s assets.
- Example: A 1% level load fee would mean that 1% of your total investment is taken each year to cover advice and services.
Examples of Load Funds
- Pioneer Fund (Front-End Load Fund): An investment vehicle offered by Amundi Asset Management that charges a sales fee upfront.
- American Funds (Back-End Load Funds): A series of funds managed by Capital Group, which often come with a deferred sales charge.
- Legg Mason Funds (Level Load Funds): They offer various mutual funds that have continuous annual fees deducted from the invested amount.
Frequently Asked Questions (FAQs)
What is the difference between load and no-load funds?
Load funds charge a sales fee either at the time of purchase, sale, or periodically, while no-load funds do not have any sales charges and are typically sold directly by the investment company.
Are load funds better than no-load funds?
It depends on the investor’s needs and preferences. Load funds offer the advantage of professional advice, which can be beneficial for those who need guidance, while no-load funds are more cost-effective for investors comfortable making their own decisions.
How are load funds sold?
Load funds are usually sold through brokerage firms, financial advisors, or other sales representatives.
Why do load funds charge these fees?
The sales charges compensate brokers and financial advisors for their recommendations and ongoing support services.
Related Terms
- No-Load Fund: A mutual fund sold without a sales charge, making it more cost-effective.
- Mutual Fund: An investment vehicle consisting of a portfolio of assets managed by financial professionals.
- Sales Charge: A fee paid by the investor to buy or sell shares in a mutual fund.
- Brokerage Firm: A financial institution that facilitates the buying and selling of financial securities.
Online References
Suggested Books for Further Studies
- “The Bogleheads’ Guide to Investing” by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf
- “Common Sense on Mutual Funds” by John C. Bogle
- “Mutual Funds For Dummies” by Eric Tyson
Fundamentals of Load Fund: Mutual Fund Basics Quiz
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