Mutual funds can be categorized into different types of load funds, namely front end loads, purchase fees, back end loads and redemption fees. But one may still ask as to what are these load funds and how do they work?
Basically load with regards to mutual funds is a kind of payment that is made to the mutual fund’s management or broker when any transaction such as sale or purchase is done.
Front load refers to a sum that is paid by the investor when the shares are sold. This is paid along with purchase fees where the front load amount is paid to the broker whereas the purchase fees are to the mutual fund’s management team. Usually front loads may start from as low as 2.50 percent to as much as 5.75 percent.
There is a similar kind of load and fees structure to be paid when there is sale of shares. This is known as back end load or rear end load and redemption fees. Similar to the above structure here also the back end load is paid to the brokers while the redemption fees are paid to the mutual fund’s management team.
One can find more of front end loads than rear end loads because rear end loads are not very common. Since the returns are pretty much same in each of the structure, an investor may not really be particular about investing in any one kind of fund. Also, it is important to remember that the performance of a load fund and a no load fund may be similar and the loads on the fund are no indication about the success of a fund.
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