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.
- Are mutual fund investors in jail? – www.tandfonline.com [PDF]
- Financial technology shocks and the case of the missing M2 – www.jstor.org [PDF]
- To load or not to load? A study of the marketing and distribution charges of mutual funds – www.tandfonline.com [PDF]
- Investigation of unbalanced bidding for economic sustainability – ascelibrary.org [PDF]
- Capital structure, payout policy, and financial flexibility – papers.ssrn.com [PDF]
- Out of sight, out of mind: The effects of expenses on mutual fund flows – www.jstor.org [PDF]
- Economic impact of distriubution fees on mutual funds – search.proquest.com [PDF]
- The economic unit approach to consolidated financial statements: Support from the financial economics literature – search.proquest.com [PDF]