Front Load Vs. Rear Load Mutual Funds
Mutual funds are a popular method for investors to gain exposure to the capital markets. While there are funds that are available without any sales charge, those that do have these charges attached are known as "loaded" funds.
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Sales Loads
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Loads are sales charges that represent the cost to buy the fund. These charges are used to defray dealer concessions paid to advisers in exchange for their advice and recommendations.
Types of Loads
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Adviser recommended funds commonly are available with different share class structures. "A" shares are known as front-end loaded and "B" shares are referred to as back-end loaded mutual fund shares. Additionally, "C" shares are also available as are various classes of institutional shares.
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"A" Shares
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"A" shares are known as front loaded--they have a sales charge that is paid one time only, upon purchase. From that point on, the only other expense incurred is the ongoing internal operating expense used by the fund company to manage the fund.
"B" Shares
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Back-end loaded shares, or "B" shares, have what is called a "contingent deferred sales charge." No sales charge is deducted upon purchase, but a prorated amount is deducted over the first several years the fund is owned by the shareholder. Normal fund operating expenses also apply.
Comparisons
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Because of break-points (reduced sales charges), "A" shares can be best suited to an investor with greater amounts of money to invest, a longer time-frame and who is not likely to redeem shares. "B" shares may be more suitable for investors with limited cash and who understand there are higher initial operating expenses.
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