Investing for Beginners , investing

Back-End Load (redemption fee) is a load fee which is similar to ‘front-end load’ but is paid when investor sells his mutual fund units instead of during the acquisition as in case of ‘front-end load’. 

Such redemption fee is a deferred fee and is paid by investor only at the end of investing in the particular fund. There may be various conditions of such charge. Sometimes it is a stable percentage fee on the invested amount while in many cases the percentage gets lower till zero when investment period gets longer. Normally, the longer the fund is held by the investor the lower redemption fee becomes. It is natural strategy of management companies because short-term investments may cause damage for the fund while creating additional costs which harms value of other shareholders of the fund.

Maybe this fee is a better option for investor than ‘front-end load’ but only if investor can avoid this fee by investing in the fund for a longer period. If there is no such opportunity, then it doesn’t make any difference for investor if to pay load fee at the beginning of the investment or at the end of it. 

While no-load funds gaining their popularity rapidly, ‘back-end load’ still might maintain its positions while front-end fee should vanish sooner or later totally.