How to Define the Different Loads In Mutual Funds

Loads are different fees that brokerages or managers charge to help them cover the costs of the fund and to make themselves more money. It's easy to define the different loads in mutual funds as soon as you understand the terms.

Difficulty: Easy

Instructions

Carrying Your Mutual Fund Load

1. Find a good Web site or investor's dictionary to help you define your fees.

2. A front-end load, or front load, fee is added on to the price of the mutual fund when you buy into it. Its cost is deducted from your investment.

3. Determine if the fund you are interested in is worth paying an extra commission to the manager or if you can find another fund without the front-load fee.

4. Back-end load fees, also called back load, exit charges or deferred sales charges, are fees investors pay for selling a mutual fund before the end of a certain number of years (usually 7 or 10).

5. Avoid paying back load fees by holding on to your mutual fund for the prescribed number of years, after which the fee drops to zero.

6. No-load funds come directly from the investment company to you without secondaries. They carry no commission or sales fees.

7. Make your money work the most for you by investing in no-load funds. As there is no proof that load funds perform better than no-load funds, there is no reason to pay the extra fees.

Tips & Warnings

• There are plenty of no-load mutual funds out there. Unless a particular mutual fund has something you really need or want that you can't find elsewhere, there's no reason to pay front-end or back-end loads.
• Mutual fund salespeople might try to pressure you into front load funds, since these fees are basically a commission for them.
• If you do decide to choose a fund with a back load fee, make sure you know how long you must hold on to the fund.
• All mutual funds charge some sort of annual fee that is generally deducted from your return. Expect to pay some amount in fees, even if you choose a no-load fund.