what is Sales Load

A sales load is a commission or fee charged to an investor by a mutual fund company when purchasing or redeeming shares. It is a cost that can impact the investor's net returns. Here are key points to understand about sales loads: 1. **Types of Sales Loads**: There are two main types: - **Front-end Loads**: These are fees charged directly from the investor's initial investment, often associated with A-share classes. The fee can be up to 5.75%. - **Back-end Loads**: These are fees charged when an investor redeems shares, typically within a specified timeframe. They are based on the initial investment rather than the redemption value. 2. **Calculation of Sales Loads**: The amount of the sales load is divided by the gross amount invested to find the sales charge rate, which is expressed as a decimal. For example, a $553.77 sales charge on a $10,000 investment would have a sales charge rate of 5.5377%. 3. **Impact on Investment Returns**: Sales loads reduce the investor's real returns, especially if the fee is high. For instance, a 5% front-end load on a $10,000 investment would mean the investor actually invests only $9,500 in the fund. 4. **Comparison with No-load Funds**: No-load funds do not charge sales fees, making them a more cost-effective option for investors. The choice between load and no-load funds can significantly affect investment returns over time. 5. **Regulatory Guidelines**: The maximum sales charge that can be applied is capped at 8.5% by FINRA. Investors should consider these factors when choosing mutual funds to minimize the impact of sales loads on their investment returns.