Introduction to Load Funds

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Introduction to Load Funds

Analyzing data on a computer screen
Mutual funds first made their appearance in modern form in the 1920s and have grown in popularity ever since. They come in two basic forms, one that assesses a sales charge and one that does not.
The former group of funds was the first to be introduced to the public and it had a corner on the market for about 50 years. And while many experts predicted that no-load funds would completely usurp their predecessors within a relatively short period of time, history has shown that this is not likely to happen.

Be sure to read A Brief History of Mutual Funds.

Basic Characteristics

Load-bearing mutual funds are structured in the same manner as any other type of fund in that they purchase a pool of securities that are geared to achieve a specific investment objective. Shares of these funds are then issued for purchase by investors, with each share representing an undivided interest in every security held by the fund. The load, or sales charge that is assessed is paid by the investor at the time of either purchase or redemption. This sales charge can vary from one to eight and one-quarter percent, and typically falls in the four to six percent range.

For example, a fund that charges a 4.75% load for A shares will pay 4% to the broker, with the 0.75% going to the broker-dealer. A share funds charge the entire load at the time of purchase. B share funds will assess a sales charge if the fund is sold within a certain period of time. The charge that is assessed usually declines according to a preset schedule, such as 5% within the first year of purchase, 4% the following year and so on until the investor is able to sell the shares at no cost. B shares usually charge higher annual expense fees in return for the ability to buy and sell shares without paying a sales charge if they are held long enough. C shares usually charge a lower fee up front and then another low fee when they are sold. They often also have higher annual expenses than A or B shares.

Learn more about What Are Share Classes?.

The Public Offering Price (POP) is the retail price that investors pay for a fund, while the Net Asset Value is the actual value of a share of the fund without its sales charge. The difference between the two prices equals the sales charge percentage.

Most load funds offer breakpoints in their sales charge structures that favor larger purchases. For example, a fund that charges a 5.75% load for purchases under $25,000 will drop to 4.75% for purchases of $25,000 to $50,000. This charge could drop to 3.75% from there to $100,000 and then to 3% up to $250,000. The charge is reduced to 2% for purchases from $500,000 to $1,000,000 and is waived above that. The dollar breakpoints differ somewhat from one fund family to another, but most fund families offer a declining sales charge schedule of this format, and credit is usually applied towards the purchase of any fund in the family for this purpose.

Be sure to see our list of the Cheapest Mutual Funds for Every Investment Objective.

Pros and Cons

Because loaded mutual funds are usually touted by brokers and advisors who work on commission, those who sell them are often willing to provide extra services for customers at little or no cost, such as free periodic financial reviews or even comprehensive financial plans. Load-bearing funds have been around much longer than their no-load peers, so they can boast commensurately longer performance histories – which have endured considerably more bad weather than even the oldest no-load offerings. And there are also many load funds that have shown themselves to be worth every penny of the charges that they assess over time.

Of course, the most obvious disadvantage that comes with loaded funds is their additional cost. No-load funds do not have this expense and therefore often outperform their loaded peers, at least for shorter periods of time. In addition to their sales charges, load funds also assess annual fees called 12b-1 fees that are used to pay for the fund management. However, these sales charges can also discourage investors from buying in and out of these funds on a regular basis, as the load fee would quickly reduce the investor’s capital by a substantial amount.

Learn more about What is a Mutual Fund Management Fee?.

Industry Leaders

Although the definition of what makes up a good mutual fund is somewhat subjective, here are a list of what are or have been considered some of the best loaded mutual funds around by both investors and analysts.

Davis New York Venture Fund (NYVTX) – This growth fund was incepted in 1969 and has usually outperformed the S&P 500 Index over longer periods of time. It is fairly unique in that it is owned and run primarily by the Davis family itself, which along with the fund portfolio managers has nearly $2 billion of its own money invested in its funds. The fund has a maximum 4.75% sales charge for A shares.

Washington Mutual Investors Liquid error: internal – This growth and income fiduciary fund has stood the test of time for decades as a reliable stock fund that stays away from “sin” stocks such as alcohol and tobacco companies. It is offered by American Funds and charges a 5.75% load for A shares.

Franklin Income Fund Liquid error: internal – This fund is designed primarily to generate current income with a secondary objective of growth. It was incepted in 1948 and has never failed to pay a dividend in its history. It is one of many income funds offered by Franklin Templeton.

The Bottom Line

Although mutual funds that carry sales charges are obviously more expensive than those that do not, cost should not be the sole determining factor when choosing a mutual fund. Historical performance, annual expenses, risk and volatility should also be considered along with any ancillary benefits that may come from purchasing a load-bearing fund. For more information on load-bearing mutual funds, consult your stockbroker or financial advisor.

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Analyzing data on a computer screen

Introduction to Load Funds

Mutual funds first made their appearance in modern form in the 1920s and have grown in popularity ever since. They come in two basic forms, one that assesses a sales charge and one that does not.
The former group of funds was the first to be introduced to the public and it had a corner on the market for about 50 years. And while many experts predicted that no-load funds would completely usurp their predecessors within a relatively short period of time, history has shown that this is not likely to happen.

Be sure to read A Brief History of Mutual Funds.

Basic Characteristics

Load-bearing mutual funds are structured in the same manner as any other type of fund in that they purchase a pool of securities that are geared to achieve a specific investment objective. Shares of these funds are then issued for purchase by investors, with each share representing an undivided interest in every security held by the fund. The load, or sales charge that is assessed is paid by the investor at the time of either purchase or redemption. This sales charge can vary from one to eight and one-quarter percent, and typically falls in the four to six percent range.

For example, a fund that charges a 4.75% load for A shares will pay 4% to the broker, with the 0.75% going to the broker-dealer. A share funds charge the entire load at the time of purchase. B share funds will assess a sales charge if the fund is sold within a certain period of time. The charge that is assessed usually declines according to a preset schedule, such as 5% within the first year of purchase, 4% the following year and so on until the investor is able to sell the shares at no cost. B shares usually charge higher annual expense fees in return for the ability to buy and sell shares without paying a sales charge if they are held long enough. C shares usually charge a lower fee up front and then another low fee when they are sold. They often also have higher annual expenses than A or B shares.

Learn more about What Are Share Classes?.

The Public Offering Price (POP) is the retail price that investors pay for a fund, while the Net Asset Value is the actual value of a share of the fund without its sales charge. The difference between the two prices equals the sales charge percentage.

Most load funds offer breakpoints in their sales charge structures that favor larger purchases. For example, a fund that charges a 5.75% load for purchases under $25,000 will drop to 4.75% for purchases of $25,000 to $50,000. This charge could drop to 3.75% from there to $100,000 and then to 3% up to $250,000. The charge is reduced to 2% for purchases from $500,000 to $1,000,000 and is waived above that. The dollar breakpoints differ somewhat from one fund family to another, but most fund families offer a declining sales charge schedule of this format, and credit is usually applied towards the purchase of any fund in the family for this purpose.

Be sure to see our list of the Cheapest Mutual Funds for Every Investment Objective.

Pros and Cons

Because loaded mutual funds are usually touted by brokers and advisors who work on commission, those who sell them are often willing to provide extra services for customers at little or no cost, such as free periodic financial reviews or even comprehensive financial plans. Load-bearing funds have been around much longer than their no-load peers, so they can boast commensurately longer performance histories – which have endured considerably more bad weather than even the oldest no-load offerings. And there are also many load funds that have shown themselves to be worth every penny of the charges that they assess over time.

Of course, the most obvious disadvantage that comes with loaded funds is their additional cost. No-load funds do not have this expense and therefore often outperform their loaded peers, at least for shorter periods of time. In addition to their sales charges, load funds also assess annual fees called 12b-1 fees that are used to pay for the fund management. However, these sales charges can also discourage investors from buying in and out of these funds on a regular basis, as the load fee would quickly reduce the investor’s capital by a substantial amount.

Learn more about What is a Mutual Fund Management Fee?.

Industry Leaders

Although the definition of what makes up a good mutual fund is somewhat subjective, here are a list of what are or have been considered some of the best loaded mutual funds around by both investors and analysts.

Davis New York Venture Fund (NYVTX) – This growth fund was incepted in 1969 and has usually outperformed the S&P 500 Index over longer periods of time. It is fairly unique in that it is owned and run primarily by the Davis family itself, which along with the fund portfolio managers has nearly $2 billion of its own money invested in its funds. The fund has a maximum 4.75% sales charge for A shares.

Washington Mutual Investors Liquid error: internal – This growth and income fiduciary fund has stood the test of time for decades as a reliable stock fund that stays away from “sin” stocks such as alcohol and tobacco companies. It is offered by American Funds and charges a 5.75% load for A shares.

Franklin Income Fund Liquid error: internal – This fund is designed primarily to generate current income with a secondary objective of growth. It was incepted in 1948 and has never failed to pay a dividend in its history. It is one of many income funds offered by Franklin Templeton.

The Bottom Line

Although mutual funds that carry sales charges are obviously more expensive than those that do not, cost should not be the sole determining factor when choosing a mutual fund. Historical performance, annual expenses, risk and volatility should also be considered along with any ancillary benefits that may come from purchasing a load-bearing fund. For more information on load-bearing mutual funds, consult your stockbroker or financial advisor.

If you’ve enjoyed this article, sign up for the free MutualFunds.com newsletter; we’ll send you similar content weekly.


Sign up for Advisor Access

Receive email updates about best performers, news, CE accredited webcasts and more.

Popular Articles

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.


Read Next