There are many factors to consider when you invest in a mutual fund, including the costs of services provided. There are different classifications for these costs, and it is important to know what they are and how much each fund charges.

What is a Load?

Mutual funds typically are sold as either "load" or "no-load" funds.

Load Funds
Usually sold through a financial advisor. The load is a sales charge, or commission, that compensates the advisor for his or her services, including fund selection advice when you buy shares of the fund and throughout the course of the investment.

Generally there are three types of loads:

  • Front-End Load
    If you buy fund shares that have a front-end load, you must pay a sales charge at the time you buy the shares. For equity funds, front-end loads typically range between 2.50% and 5.75% of your initial investment, with the latter being the most common. For fixed income funds, front-end loads range between 1% and 6.25% of your initial investment, with one of the most common loads being 4.50%. The amount of the load is based on the amount of your investment, and the percentage usually decreases for larger purchases. Shares that have a front-end load are referred to as A shares.
  • Back-End Load
    If you buy fund shares that have a back-end load, you may have to pay a sales charge when you sell the shares. This may be referred to as a contingent deferred sales charge (CDSC). The amount of the back-end load usually decreases the longer you own the shares. For example, you may have to pay a CDSC that is 5% of your account balance if you sell shares within one year of your initial purchase, but the load will decrease each year if you continue to hold those shares. After you have held the shares for six years, there typically is no back-end load. Shares that have a back-end load are referred to as B shares.
  • Level Load
    If you buy fund shares that have a level load, you have to pay an annual sales charge that is typically 1% of your account balance. Although a level load may be lower than a front- or back-end load, you may pay more if you own the shares for many years. Shares that have a level load are referred to as C shares.

No-Load Mutual Fnds
These funds do not have sales charges. You generally can purchase no-load fund shares directly from the investment company. Shares of no-load funds also may be available through a financial intermediary, such as a brokerage firm.


A Look at Annual Operating Expenses

Mutual funds usually have expenses that are passed on to investors, whether the funds are load or no-load. These are referred to as the fund's annual operating expenses and are taken out of the fund's total assets.

  • Management Fee
    Most mutual funds have a management fee to cover the cost of managing the portfolios. This fee is calculated as a percentage of the fund's total assets, generally between 0.50% and 2.0% annually for equity funds, and may or may not be fixed.
  • 12b-1 Fee
    Mutual funds sometimes charge a fee to cover sales and marketing expenses, which is referred to as a "12b-1 fee" after the Securities and Exchange Commission rule allowing this type of fee. This fee also is figured as a percentage of the fund's total assets. A mutual fund with a 12b-1 fee may be referred to as no-load, provided the fee is not more than 0.25% of the fund's assets each year. Load funds usually charge an annual 12b-1 fee.
  • Redemption Fee
    Mutual funds may charge a fee if you sell your shares within a defined period of time. A fund may have a redemption fee to discourage early withdrawals from the fund. This fee is different from a CDSC. A CDSC pays the investment manager back for commission paid to the broker on your behalf, while a redemption fee is paid back to the fund and is used to compensate the fund for transaction fees generated by such early withdrawals.

There may be other expenses included in a fund's total annual operating expenses. Consult the fund's prospectus or your financial advisor for information about the fees and expenses for a particular investment.

Costs shouldn't be your only consideration when investing in mutual funds. Choose a fund because it has solid management and a good track record and meets your investment strategy.


This information is for educational purposes only and is not intended as investment advice.