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Back-End Load

What is a 'Back-End Load'

A back-end load is a fee (sales charge or load) that investors pay when selling mutual fund shares, and the fee amounts to a percentage of the value of the share being sold. A back-end load can be a flat fee or can gradually decrease over time, usually within five to 10 years. In the latter case, the fee percentage is highest in the first year and decreases yearly until the specified holding period ends, at which time it drops to zero.

Explaining 'Back-End Load'

A back-end load can also be known as a contingent deferred sales charge.

Fee Structures in Different Share Classes

Class A shares usually charge a front-end load, which is taken from an investor's initial investment. Class B shares typically don't have the front-end load, but instead may carry the 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, normally charging no front-end but levying low back-end loads. However, Class C shares tend to have higher operating expenses. In all cases, the load is paid to a financial intermediary and is not included in a fund's operating expenses.

Examples of Funds with Back-end Loads

The American Funds Washington Mutual Investors Fund Class B is one example of a fund with a back-end load. This share class of the $79 billion fund carries a maximum deferred sales charge of 5% and declines gradually until disappearing altogether in the seventh year. The fund also has an expense ratio of 1.33%, as of June 30, 2016.


Further Reading


Are mutual fund investors in jail?
www.tandfonline.com [PDF]
… Applied Financial Economics … The analysis of the performance/back-end load fee relationship (results not shown) shows that, in general, there exists a positive … In terms of inflows, if an economic agent (concerned with potential liquidity shocks) chooses a fund with low back-end …

Financial technology shocks and the case of the missing M2Financial technology shocks and the case of the missing M2
www.jstor.org [PDF]
… Applied Financial Economics … The analysis of the performance/back-end load fee relationship (results not shown) shows that, in general, there exists a positive … In terms of inflows, if an economic agent (concerned with potential liquidity shocks) chooses a fund with low back-end …

To load or not to load? A study of the marketing and distribution charges of mutual fundsTo load or not to load? A study of the marketing and distribution charges of mutual funds
www.tandfonline.com [PDF]
… Applied Financial Economics … The analysis of the performance/back-end load fee relationship (results not shown) shows that, in general, there exists a positive … In terms of inflows, if an economic agent (concerned with potential liquidity shocks) chooses a fund with low back-end …

Investigation of unbalanced bidding for economic sustainabilityInvestigation of unbalanced bidding for economic sustainability
ascelibrary.org [PDF]
… Applied Financial Economics … The analysis of the performance/back-end load fee relationship (results not shown) shows that, in general, there exists a positive … In terms of inflows, if an economic agent (concerned with potential liquidity shocks) chooses a fund with low back-end …

Capital structure, payout policy, and financial flexibilityCapital structure, payout policy, and financial flexibility
papers.ssrn.com [PDF]
… Applied Financial Economics … The analysis of the performance/back-end load fee relationship (results not shown) shows that, in general, there exists a positive … In terms of inflows, if an economic agent (concerned with potential liquidity shocks) chooses a fund with low back-end …

Out of sight, out of mind: The effects of expenses on mutual fund flowsOut of sight, out of mind: The effects of expenses on mutual fund flows
www.jstor.org [PDF]
… Applied Financial Economics … The analysis of the performance/back-end load fee relationship (results not shown) shows that, in general, there exists a positive … In terms of inflows, if an economic agent (concerned with potential liquidity shocks) chooses a fund with low back-end …

Economic impact of distriubution fees on mutual fundsEconomic impact of distriubution fees on mutual funds
search.proquest.com [PDF]
… Applied Financial Economics … The analysis of the performance/back-end load fee relationship (results not shown) shows that, in general, there exists a positive … In terms of inflows, if an economic agent (concerned with potential liquidity shocks) chooses a fund with low back-end …

The economic unit approach to consolidated financial statements: Support from the financial economics literatureThe economic unit approach to consolidated financial statements: Support from the financial economics literature
search.proquest.com [PDF]
… Applied Financial Economics … The analysis of the performance/back-end load fee relationship (results not shown) shows that, in general, there exists a positive … In terms of inflows, if an economic agent (concerned with potential liquidity shocks) chooses a fund with low back-end …



Q&A About Back-End Load


What is a back-end load?

A back-end load is a fee that investors pay when selling mutual fund shares, and the fee amounts to a percentage of the value of the share being sold.

Is there only one type of back-end load?

No, there are two types.

When should you convert from class B to class A shares?

Converting from class B to class A may not happen at the correct time if the new broker does not have a record of the initial purchase date of the class B shares.

Why do some people dislike the practice of using back-end loads?

Back-end loads add to fees without necessarily increasing returns.

What are some examples of funds with back-end loads?

Putnam Investments and Fidelity Investments both offer mutual funds with back-end loads.

Does an investor lose money on every transaction made using his or her investment dollars even though he pays fees each time he makes such transactions?

Yes, this is true because all fees paid by investors go directly to financial intermediaries and are not included in operating expenses which cause losses on each transaction made using investment dollars by investors who pay fees each time they make transactions using their investment dollars."

How does an investor know if he or she has purchased a fund with a high expense ratio?

The investor will need to look at the prospectus for this information or ask his or her financial advisor for help in determining this information.

What are Class A shares?

Class A shares charge a front-end load.

What are Class B shares?

Class B shares do not have the front-end load but instead may carry the back-end load that is charged when an investor redeems his mutual fund shares.

Are there any other types of class C funds besides class C funds with low loads?

Yes, they can also be known as level-load funds because they charge no front end but levy low back end loads. However, these funds tend to have higher operating expenses than other classes of fund.

How can you avoid paying a fund's back end load?

You can avoid paying a fund's back end load by selling your shares before the time period in which you would be charged for it ends.