Deferred Load
Contents
Understanding Deferred Loads in Mutual Funds
Exploring Deferred Loads
Deferred loads, also known as deferred sales charges, are fees associated with mutual funds that are charged when investors redeem their shares, rather than at the time of purchase. This unique fee structure allows investors to invest their entire initial amount without deductions, with the fee being applied later upon redemption.
Key Takeaways on Deferred Loads
- Deferred loads are mutual fund fees charged upon redemption, rather than at the time of purchase. (Source: Investopedia)
- The fee is typically calculated as a percentage of either the initial investment or the redemption value, whichever is lower.
- Funds with deferred loads often include a 12b-1 fee, covering marketing, selling, and distribution expenses.
Understanding Deferred Loads
Deferred loads are common in certain classes of mutual fund shares and are usually applied within a specified period after the initial investment. They may vary in structure, often decreasing over time or based on the duration of the investment. These fees are typically calculated as a percentage of the fund's assets under management.
Example of Deferred Loads
For instance, if an investor puts $10,000 into a fund with a 5% deferred sales load, the entire amount is invested in the fund upfront. The 5% sales load is only deducted when the investor decides to redeem their shares, ensuring that their initial investment remains intact until that point.
Deferred Loads and 12b-1 Fees
In addition to deferred loads, mutual funds may charge 12b-1 fees to cover distribution and shareholder service expenses. These fees are often taken out of the fund's assets and can vary in size. While the SEC does not limit the size of 12b-1 fees, FINRA rules impose certain restrictions, particularly on marketing and distribution expenses.