Load: What it means, types, and considerations

A load is a sales charge or commission paid by an investor when buying or redeeming shares in a mutual fund. Loads compensate intermediaries (brokers, financial advisers, or distributors) for marketing and distribution. Mutual funds disclose sales-charge schedules in their prospectuses and structure them by share class.

How loads work

Loads are set by the mutual fund company and vary by share class (commonly A, B, C, I, etc.).
Front-end and back-end loads are charged directly to investors and are not included in the fund’s net asset value (NAV).
Some funds instead include distribution fees in their annual operating expenses (see level loads / 12b-1 fees).

Types of loads

Front-end load

Charged when you buy shares (commonly associated with A-shares).
Typical range can go up to about 5–6% of the purchase.
Pros: May result in lower ongoing expense ratios; discounts often available for larger investments (breakpoints).
Cons: Reduces the amount initially invested, which can hurt compounding, especially on shorter horizons.

Back-end load (contingent deferred sales charge)

Charged when you sell shares (often associated with B- or C-shares).
Often declines over time (for example, tapering to zero after a specified holding period, commonly 5–10 years).
Different from a redemption fee (see below).

Level load (12b-1 fee)

An annual fee paid from the fund’s assets to distributors/advisers and included in the fund’s expense ratio.
Quoted as a percentage of assets and continues for as long as the investor holds the fund.
Funds with front-end loads may charge smaller 12b-1 fees; no-front-load share classes may charge higher 12b-1 fees to compensate intermediaries.

Redemption fees (not a load)

Charged by some funds to discourage short-term trading and to cover transaction costs.
Paid to the fund (not intermediaries) and typically applied if shares are redeemed within a short period (e.g., 30 days to 1 year).
Not considered a sales load.

Considerations for investors

Loads go to intermediaries rather than staying with the fund’s investment pool; they can materially affect returns, especially early on.
Many investors avoid loads by:
Buying no-load funds sold directly by the fund company or through discount brokerages.
Investing through retirement plans (401(k), IRAs) that may offer institutional share classes without retail loads.
Funds commonly offer sales-charge discounts for:
Breakpoints (reduced charges for larger purchases).
Rights of accumulation (crediting previous holdings toward a breakpoint).
Letters of intent (agreeing to invest additional amounts to reach a breakpoint).
Compare total costs: a front-end load plus lower annual expenses may or may not be cheaper than a no-load or level-load fund with higher ongoing fees, depending on holding period and expected returns.

Choosing between load and no-load funds

For long-term investors, the difference between front-loaded and no-load funds can diminish but depends on how much of the initial investment is lost to the load and the fund’s subsequent performance and fees.
For short-term horizons, front-end loads often make the investment less attractive because there’s less time to recover the initial sales charge.
Evaluate the fund’s overall expense ratio, performance, and whether you need distribution or advisory services that justify paying a load.

Key takeaways

A load is a commission on mutual fund purchases or redemptions; front-end loads are paid at purchase, back-end loads are paid at sale, and level loads (12b-1) are ongoing annual fees.
Loads compensate intermediaries and can reduce investor returns; they are separate from the fund’s NAV.
Consider holding period, total expense ratios, and available discounts (breakpoints, rights of accumulation) when deciding whether a load-funded share class makes sense.
Many investors avoid loads by using no-load funds, discount brokers, or retirement-plan share classes.