Front-End Load, Back-End Load, "Level Load" And No-Load - Breaking Down Mutual Fund Fees

If you are planning on buying a mutual fund, your head may be spinning after reading the fund's prospectus.

You thought that it would be as easy as simply buying a fund and paying a small commission to your broker. But it's not.

You have mutual fund "operating expenses" that are taken out of the mutual fund assets every year. You have no-load, back-end load, level load and front-end load mutual funds. What does all of that mean?

If a mutual fund is said to be a "Load Fund", this means that there is some sort of a fee for either buying or selling the fund. The "load" typically goes to the brokers that sell the mutual funds. Some funds are "no-load" funds, which means that there is not a fee to either buy or sell the fund; instead they will usually charge different types of fees including exchange fees or account fees. There is no such thing as a "free" mutual fund; even with a no-load fund, you are paying money to the mutual fund out of the assets of the fund to cover its expenses.

Here is a break-down of the different "loads" -

"Front-End Load" - this is when you pay a fee up front to purchase a mutual fund. The NASD says that you can not pay more than 8.5% of your investment to a front-end load. So let's say that a fund has a 4% "front-end load" and you decide to invest $1,000 in the fund. This would mean that $40 is coming straight off your investment to pay the "load."

"Back-End Load" - as you might expect, this is a fee that some mutual fund owners will pay once they decide to sell their shares. Normally the longer you own a fund, the lower the back-end load will be.

"No-Load Fund" - as the name implies, this is a fund with "no load." Again, this doesn't mean that you won't be paying for fund expenses or account fees. This just means that you won't be forking over 4% of your investment to the brokerage who sells you your mutual fund shares.

"Level Load" - an annual charge which is deducted from the investor to pay distribution and marketing costs of the mutual fund. This fee usually goes to intermediaries who sell a fund's shares to the public.

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