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What is a Load Fund?

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  • Written By: J. S. Petersen
  • Edited By: Niki Foster
  • Last Modified Date: 10 September 2016
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A mutual fund which charges investors fees is called a load fund. No-load mutual funds do not charge "sales load" type fees, but they are allowed to charge the shareholder other types of fees. A load fund pays one or more brokers who make the mutual fund's stock and bond transactions. These broker fees are passed on to the shareholder of the load fund in the form of various shareholder fees.

The shareholder fees of a load fund can be arranged in several different ways. Some load funds charge fees at a regular period. Some load funds charge a fee to investors when they purchase their shares. A load fund can also charge fees to the shareholder at the time of sale.

If a load fund charges the shareholder when he or she purchases shares of the fund, the fees are known as "front-end sales load" fees. Front-end fees on a load fund are taken out before the money is used to purchase shares. An investor in a front-end fee load fund should keep this in mind when calculating the investment. For example, if a load fund had a 3% front-end sales load fee and the investor purchased $1,000 worth of stock, $30 would go to pay the fee and $970 worth of shares in the load fund would be purchased.

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A load fund that charges the shareholder a fee upon the sale of fund shares is called a deferred or back-end sales load. When investors make their purchase of shares, all the money goes toward the purchase of the fund. When the investor sells shares of the load fund later, the load fee is taken at that point.

The fee in a back-end sales load is usually calculated based on the lower value of the invested money or its final value. That is to say that if the investment increases in value, the load fee is calculated from the initial investment; and if the investment decreases in value, the load fee is calculated from the final value. Not all back-end load funds calculate this way, so it is important to read the investing prospectus to know for sure.

It is important to note that no-load mutual funds can also charge fees. A load fund charges fees based on sales transactions, while a no-load fund charges other types of fees. A no-load fund's fees are paid to the fund, rather than to a broker. No-load funds typically have lower fees than load funds, but some investors believe that load funds are better managed to make up for the higher fees.

Whether investing in a load fund, a no-load fund, or any other investment, research is the key to success. Knowing as much as possible about the fund, its fee structure, market information, and the many other important details will give an investor the best chance for financial success.

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