What is a Load Fund?
A load fund is a mutual fund that carries a fee to purchase or sell its . This is expressed as a percentage of the amount invested.
How Does a Load Fund Work?
In general, there are two kinds of load funds: front-end loads and back-end loads. A front-end load is a fee paid to purchase an , and a is a fee paid to sell an investment (it may also be called a contingent deferred sales charge, an exit fee, or a redemption charge). A no-load fund is a that does not charge any fees of this type.
Let's assume you are interested in making a $10,000 investment in the Company XYZ. If the has a 4% front-end load, then of the $10,000 investment, $400 ($10,000 x .04) is paid to the company and $9,600 is actually invested in the . Ideally, the from the investment should more than make up for the front-end load. In this example, the front-end loaded must return 14.6% in one year to reach $11,000 in value.
If theinstead has a 4% , then you must pay a $400 fee upon the sale of the investment ($10,000 x .04). Again, the from the investment should ideally more than make up for the . In this example, the must therefore return 14% in one year to reach $11,000 in value after the fee.
Clearly, the size of theaffects the size of the investor's return. In our example, if the Company XYZ is a no-load , then in order to reach $11,000 in value after one year, it only needs to generate a 10% return.
Frequently, investors are able to pay reduced loads if they make large breakpoint and varies from investment to investment. Some may have more than one breakpoint. In some cases, an investor can sign a letter of intent with the investment company, promising to invest a certain amount over time in order to qualify for the reduced now.. The amount that qualifies for a reduced is called the
Why Does a Load Fund Matter?
Load funds discourage investors from frequently trading their, an activity that requires to have considerable amounts of on hand rather than invested. Generally, however, a is considered payment for the 's expertise in selecting the right for the investor. Notably, there is considerable controversy about whether load funds perform better or worse than no-load funds.