Reviewed by Sep 30, 2020| Updated on
A load fund can be defined as the mutual fund that includes a commission in the form of a sales charge. The load is required to be paid by the investor as compensation for the services offered by the intermediary. The intermediary can either be a broker or an investment advisor. The load on these funds can vary depending on the mutual fund classes involved.
The load on a mutual fund can be categorised into two types—front-end load and back-end load.
A front-end load is paid at the time of purchase of shares. Similarly, a back-end load is charged at the time of sale of shares by the investor.
However, these charges are not included under the operating expenses of the mutual fund. They are generally paid to the intermediary, i.e. the broker or advisor as commission for the transaction.
On the contrary, there are also funds which do not charge a load on them. These funds are referred to as no-load funds, and they can be purchased directly from the mutual fund houses.
While many investors believe that no-load funds are the better option when compared to load funds, it might not be true. Since the service charges or compensation on load funds are paid to the fund manager to make smart investment decisions on the investors' behalf, they give the investors access to the best performing funds despite little knowledge of the market.
The primary disadvantage of load funds is the load itself. With more and more no-load funds being issued in the market, investors are gravitating towards the funds that do not attract any sales charge or commission.