Reviewed by Aug 27, 2020| Updated on
A load is generally a sales cost imposed on investors when they wither purchase or redeem their mutual fund units. The sales charge or commissions can be designed in several ways.
Mutual fund companies determine this and intermediaries charge this cost by investors on the transactions made by them. Back-end loads and front-end loads are the most common types of sales charges. Mutual funds with loads are the opposite of mutual funds with no load.
How Does a Load Work?
A load is generally a sales charge that remunerates intermediaries and third parties for issuing mutual fund units. The load differs by the class of shares and is as calculated by the fund houses.
Fund houses are authorised by regulators to structure their sales charges depending on the share class. Also, fund houses are mandated to provide the schedule of sales charge in their respective prospectus. Loads are either imposed on back-end or front-end level.
You need to note that once you pay these charges, they are directly routed to the intermediaries and are not accounted for when calculating the Net Asset Value (NAV) of a mutual fund scheme.
Funds With No Load
No-load mutual funds are those funds that come with no load attached. There are no sales charge and commission involved in them. This is because there are no third parties or intermediaries involved between the investors and mutual fund companies.
In the case of no-load mutual funds, the investors directly purchase the fund units from a mutual fund company.
As there is no mediator involved, sales charges, collected in the form of loads, are not imposed on the investors. Hence, by investing in these funds, investors can save a good amount.
Furthermore, there are fund plans that are level-load funds in which fee will continue for the duration over which an investor stays invested in the fund scheme.