WHAT ARE LOAD AND NO-LOAD FUNDS?
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load is a sales charge.
It may be added to the price you pay to purchase shares, or it
may be deducted from the proceeds you receive when you sell shares.
funds use registered representatives to sell shares to the public. They may
use third parties?usually brokers?or they may use in-house representatives.
The load compensates them for their work in selling the fund
shares. By law, sales charges may not exceed 8.5 percent of the amount invested.
Competition among funds, however, has led many funds to lower their sales
charges or even eliminate them entirely.
funds have a sales charge when shares are purchased (front-end
load) or when redeemed (back-end load or
If an individual invests $1,000 into a load mutual fund with a
front-end sales load of 8 percent, $80 goes for sales charges and $920 goes into
the fund. Back-end load fees are subtracted from the proceeds of the
with no sales charge are called no-load funds.
No-load funds sell their shares directly to investors. These
funds eliminate sales loads by eliminating the sales force. A true no-load fund
does not have a back-end load, either. Nevertheless, some funds that call
themselves no-load funds do charge back-end loads.
You can tell whether a mutual fund charges a load by reading its
prospectus. Many funds advertise their no-load status in financial publications
and on television and radio.
On the next screen, we will look at how you can identify a
load in the financial pages.