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Investment Dictionary

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Load Fee


'Load fee' is a fee that is paid during the selling process of the mutual fund. The sales load fee is also called as sales fee or distribution fee because normally it is paid by investor during sales-distribution phase. It is one-time charge which is some percentage (0%-5%) paid on the amount that is invested in the mutual fund. 


There are two main types of load fee:


Almost all mutual funds had load fees applied for their clients a decade ago because there was a need to support large fund distribution networks where a lot of people were involved. However, now when all mutual funds can be easily distributed trough low cost computerized network, competition pushes load funds out, and the future definitely belongs to the no-load funds or ETFs. Although some back-end load fees motivate investors to be long-term oriented and can be justified if terms are not excessive.


Load fee is a significant cost for investor, especially in case of short/mid-term investing. For example, if investor pays 3% load fee, and ‘total expense ratio’ of the fund is 3%, and average return of the equity market is equal to 10%, and if investor is investing for one year period, he pays 6% in fees when the potential market return is 10% which means that net potential return of the investor is only 4% because all the rest is paid in fees and charges for fund manager and brokers. So it is natural, that investors are avoiding such fee and it should vanish in future. This fee is the worst of all investment management fees.


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