Mutual Fund Sales Charges

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Mutual Fund Sales Charges

Sales charges are fees one pays when purchasing shares in a mutual fund. By law, sales charges may not exceed 8.5 percent of the amount invested. Competition among funds, however, has led many funds to lower their sales charges or even to eliminate them.

The difference between load and no-load funds

Funds with no sales charge are called no-load funds. These funds have other fees and may even charge fees for redeeming shares.

Load funds have a sales charge when shares are purchased (front-end load) or when redeemed (back-end load).

To illustrate a front-end load, an individual investing $1,000 in a load mutual fund with a front-end sales load of 8.5 percent pays $85 in sales charges and $915 to purchase actual shares.

How share classes relate to loads

Some funds offer three classes of shares. These are called class A, class B, and class C. Each class provides a different method of applying the sales charge. Class A shares include front-end sales charges. Class B shares have a deferred sales charge. Class C shares have a low front-end sales charge, although other fees may be increased.

Sales charges may be reduced for lump-sum purchases. Amounts qualifying for a reduced sales charge are known as breakpoints. Breakpoints may start at $10,000.

Points to ponder

When considering a loaded fund, evaluate what you get for the sales charge. Do you get a personal investment representative who can help with your investment needs? Can you exchange funds from one to another or redeem shares without incurring additional commissions? If so, a one-time sales charge can be less costly than "buying and selling" investments through a broker with commissions paid when you buy and sell. Be sure you get what you pay for and pay for what you need.