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The mutual fund industry has designed many different load structures. You usually get to make a choice about how to take your load, even within the same fund, because many load funds offer several different classes of shares.
Class A shares have a front-end load; Class B shares have a back-end load. Class C shares have small, if any, front or back loads, but they have a steady annual 12b-1, or level load.
The four types of mutual fund loads -- front-end,
back-end, level and no-load -- are described here.
Trying to decide between buying a load versus a no-load mutual fund? Read "Buying mutual funds: load or no-load?."
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Types of mutual fund loads |
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Select one of the tabs to view the information on the types of mutual fund loads.
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Associated
with
Share Class C.
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Definition
A level load is an annual 12b-1 fee, usually 1 percent per year for the duration of an investment.
(Yes, A and B shares usually have 12b-1 fees as well, but they're lower on A shares and eventually the fees disappear on B shares.)
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Advantages
Usually no cost to enter the fund, and small, if any, cost to exit.
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Disadvantages
Relatively high annual fees.
C shares usually do not convert to another class, no matter how long you hold them. And over enough time, high annual fees add up to more than a one-time sales charge.
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Beware
Many Class C shares have redemption fees of up to 2 percent in addition to level loads.
Like a back-end load, this is a charge levied when you sell your shares. The distinction between this and the typical load on a B share is the shorter time frame. The redemption fee on C shares often expires if you hold them longer than 90 days or a year.
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Tip: Fee may work in your favor
One of the main reasons for a redemption fee is to discourage people from jumping in and out of the fund too rapidly. While any limit on your flexibility can seem like a burden, this deterrent may actually work in your favor.
Think of it this way: Excessive trading takes time and energy from the fund managers, which would be better-spent looking after the fund's assets. Even more important, when there's a likelihood that a substantial number of people will want to sell their shares on any given day, the managers have to keep significant sums of cash in the fund to be ready to buy them out. The less short-term trading that goes on, the less liquid the fund has to be and the more of everybody's investment can be working for them in the stock market.
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