What Is a Back-End Load?

A back-end load is a fee paid by investors when selling mutual fund shares, and it i🦂s expressed as a percentage of the value of the fund's shares. A back-end load can be a flat fee or gradually decrease over time, usually within five to ten years. In the latter case, the percentage is highest in the first year and falls until it drops to zero.

Understanding Back-End Loads

A contingent deferred 澳洲幸运5官方开奖结果体彩网:sales charge is a type of back-end load that depeꦓnds on the holding period. Back-end loads are also k🌠nown as back-end sales charges. Another term for a back-end load is an exit fee.

Back-end loads usually appear when a fund offers 澳洲幸运5官方开奖结果体彩网:different share classes. Class A shares generally charge a front-end load, while Class B and Class C shares typically carry a back-end load. In essence, funds with share classes carry sales charges (as opposed to 澳洲幸运5官方开奖结果体彩网:no-load funds). The class chosen determines the fee structure an 🐈investor pays.

Sales charges, or loads, are typically used by mutual funds and are a way for financial advisors to earn a commission on the sale of a fund's shares to investors. These mutual funds offer different share classes with different fee structures for investors. A back-end load should not be confused with a 澳洲幸运5官方开奖结果体彩网:redemption fee. Some mutual funds charge a redemption fee to discoura𒉰ge frequent trading, which can interfere with the fund's investment objective.

Fee Structures in Different Share Classes

Class A shares usually charge a front-end load, which comes out of the initial investmentꦆ. Class B shares typically don't have the front-end l🅷oad. Instead, they may carry a back-end load that is charged when the investor redeems his mutual fund shares.

Class C shares are considered to be a type of level-load fund. They usually charge no front-end fees but levy low back-end loads. However, Class C shares tend to have higher operating expenses. In all cases, the load is paid to a 澳洲幸运5官方开奖结果体彩网:financial intermediary and is not included🌞 in a fund's operat🍸ing expenses.

Benefits of Back-End Loads

Alth🐷ough back-end loads are frequently🐲 criticized, they do have some advantages:

• Back-end loads discourage overtrading and unnecessary early 澳洲幸运5官方开奖结果体彩网:withdrawals.
• Unlike front-end loads, investors can often avoid back-end load fees by holding the fund for five to ten years.
• Class B shares often convert to Class A shares with lower expense ratios after six to eight years.
• All of your dollars go to work for you, unlike Class A shares where the sales load is deducted before dollars are invested.

Criticism of Back-End Loads

Back-end loads are generally an unnecessary expense for most investors in the 21st century. 澳洲幸运5官方开奖结果体彩网:Exchange-traded funds (ETFs) and no-l🐲oad mutual funds are widely available and do not have back-end loads♍. In particular:

• Back-end loads add to fees without necessarily increasing returns.
• It is easy to overlook back-end loads when first investing in a mutual fund.
• Back-end loads punish investors who must make early withdrawals to deal with emergencies.

If you own class B shares, keep track of when they are to class A shar🤡es particularly if your shares are held in an account that's been transferred from one brokerage firm to another. You can find out when your B shares convert by looking at the prospectus or by checking with your broker or adviser.

Real-World Example

The Putnam Equity Income Fund Class B is one example of a fund with a back-end load. This share class of the $17.7 billion fund carries a maximum deferred sales charge of 5% and declines gradually until disappearing altogether in the seventh year. The fund's class B shares also have an expense ratio of 1.63%, as of Q1 2022.