Load Funds: A Beginner’s Guide To Advantages & Definitions

In 1995 only 28.7% of American households had investments in mutual funds. That number has shown a steady increase. In fact, since the year 2000, between 43% and 46.3% of households are invested in mutual funds. 

What is it about mutual funds that make so many Americans comfortable using them for investing for the future?

90% of those investing in mutual funds believe the historical performance of a fund is the reason they seek out that type of investing. 

But how does someone decide on a fund? Should you choose load funds or no-load funds? For many beginning investors, a front-load mutual fund is a smart choice. 

Read on to learn more about load mutual funds and why they might be the right choice for your investing choices.

load funds guide

What Is a Load Mutual Fund?

A load mutual fund is one type of mutual fund. It means that as an investor you’re paying a sales commission or charge for buying into the fund. 

The load is used to pay the sales intermediary who is typically a broker, financial planner, or investment advisor. 

You can select a front-end load mutual fund which means you pay the fees and commissions when you buy into the fund. The amount you pay is typically based on a percentage of the amount of your investment. 

A back-end load means the fees are paid when the shares are sold from the mutual fund. 

Load Vs No-Load Fund

A load mutual fund means you’re getting the advice and guidance of a financial professional who is helping you to select the best mutual fund. The reason you pay the load is for their expertise. 

In a no-load fund, you don’t pay the load. Instead, you purchase into the fund directly or from a mutual fund marketplace. Often a no-load mutual fund comes with a very small fee to handle the distribution of dividends. 

So, why would anyone choose a load vs a no-load fund when you could avoid the fees? Of course, the reason is that a load fund comes with expert advice and counsel. You’re also paying for the guidance of a financial professional. 

Many people who feel like they don’t have the time or expertise to pay attention to what’s happening with their mutual fund, prefer the load funds. 

Share Classes of Load Funds

Mutual funds in and of themselves are companies. If you decided to buy stock in Apple, your stock purchase would mean you now own a small percentage of the company.

A mutual fund is also a company that has invested in a variety of sources. Mutual funds set up classes inside the fund. Each class has advantages and disadvantages and will impact the cost of the investment into the fund. 

Let’s take a closer look at the share classes of load funds.

Class A Shares

Purchasing Class A shares typically means you’re paying front-load fees. These fees are often 5% or higher of the amount you invest into the fund. 

If you invest $10,000 into the Class A shares fund and pay a 5% front-load, you’d pay $500 in fees and commissions. This fee is taken right from your initial investment. So, you’d start in the fund with $9,500. 

The option is usually a good choice for investors who want to put a large chunk of money in and not make frequent purchases into the fund. 

Class B Shares

Unlike Class A shares, Class B shares do not carry a front-load. Instead, they come with what’s called a contingent deferred sales charge (CDSC). 

This means the load is paid at the end when the shares are sold from the mutual fund. It also means for this type of fund that the investor will pay slightly higher 12b-1 fees. These are the fees associated with the distribution of dividends from the fund. 

The 12b-1 fees are either deducted from the fund balance or charged from ETF assets. 

Class C Shares

Class C mutual funds charge the load annually. This means each year, the investor pays a level-load, often 1% of the balance on the account. 

For long-term investors, this can be an expensive option to pay the level load each year. Class C shares are usually a better option for a short-term investor. 

Class D Shares

Class D shares were created as an alternative to the previous three options that are basically front-end load, back load, or yearly load. 

Class D shares are typically a no-load option in the fund. This would allow a potential investor to buy into the fund without a financial professional.

Advisor Shares

Advisor shares, sometimes listed as ADV shares, are only available through the specific advisor offering them. 

They often come with only 12b-1 fees and are offered to preferred investors who work with the financial advisor for many things. 

If your financial advisor offers this option and allows you to buy into them, it can be cost savings because they come with minimal fees.

You get the advantage of the advisor with minimal fees. 

Institutional Class Funds

Institutional funds are usually only available to large institutional investors who bring large investment sums. These class shares are sometimes listed as Inst, Class I, Class X, or Class Y shares. 

Sometimes a company that has a 401k plan with many employee investors will invest with institutional funds because they’re pooling the funds of many investors together.

Why Should You Buy a Load Fund?

It would be logical to wonder why you should pay load fees when maybe you could buy into the no-load mutual fund

Remember, first there are many different mutual funds on the market. Finding the best mutual fund for you requires some real research and financial know-how. 

There is a reason they’re called financial professionals. When you purchase into a load mutual fund it comes with all their research, knowledge, and financial advice. For many investors, the fees are worth the fees. 

Understanding Load Funds

Mutual funds are a popular smart option for investors planning for the future.  Load funds allow an investor to buy into a mutual fund and also get the financial experience of a financial advisor or financial planner

If you’re looking for the help of a financial advisor, we can help. We offer independent financial advice to all of our clients. Contact us today to set up a time when we can discuss your financial goals.

Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC [“Bogart Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level (s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at bogartwealth.com

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