Level Load
Contents
Demystifying Level Loads in Mutual Funds
Understanding Level Loads
Level loads, also known as 12b-1 fees, represent a continuous charge deducted from an investor's mutual fund assets, covering distribution and marketing costs. These fees remain consistent throughout the investor's ownership of the fund and are often directed towards intermediaries involved in selling the fund's shares to the public.
How Level Loads Operate
Unlike front-end or back-end loads, which impose charges at the point of purchase or sale, level loads are set at a fixed percentage and collected annually from the investor. They contribute to funding the marketing, distribution, and servicing of the mutual fund. The calculation of these fees is based on the fund's average net assets, and they are included in the fund's expense ratio.
Exploring the Benefits and Criticisms
Level-load payments offer investors the advantage of spreading commission payments over time and allow the entire investment amount to be immediately allocated to the fund without upfront commission deductions. However, critics argue that these fees can erode investment returns over time and have faced scrutiny regarding their necessity in a competitive mutual fund landscape.
Example and Payment Structure
Consider an investor who invests $100,000 in a mutual fund with a 4% annual level load. As the investment grows, the investor continues to pay the level load, with the payment amount increasing alongside the investment value. Should the investor decide to sell the shares before a year has passed, they would still owe a level-load payment, akin to a back-end load, albeit usually at a smaller rate.