# Load Fund: What it Means and how it Works

> **Definition**
>
> A load fund, as opposed to a no-load fund, is a mutual fund that charges investors a sales commission to compensate the financial intermediaries who recommend the fund.

## What Is a Load Fund?

A load fund is a mutual fund that comes with a [sales charge](https://www.investopedia.com/terms/s/salescharge.asp) or commission. The fund investor pays the load, which goes to compensate a sales intermediary, such as a [broker](https://www.investopedia.com/ask/answers/06/brokerandmarketmaker.asp), [financial planner](https://www.investopedia.com/terms/f/financialplanner.asp), or investment advisor, for his time and expertise in selecting an appropriate fund for the investor. The load is either paid upfront at the time of purchase (front-end load), when the shares are sold (back-end load), or as long as the fund is held by the investor (level-load). Load funds may be contrasted with [no-load funds](https://www.investopedia.com/terms/n/no-loadfund.asp), which do not carry a sales charge.

### Key Takeaways

*   A load fund entails mutual fund shares that carry a sales commission paid by the fund purchaser.
*   Loads may be paid at time of purchase (front-load) or at time of sale (back-load), and are often paid to a broker or agent who sold the fund.
*   The way the load will be paid will vary depending on the mutual fund share class involved.

## Understanding Load Funds

If a fund limits its [level load](https://www.investopedia.com/terms/l/levelload.asp) to no more than 0.25% (the maximum is 1%) it can call itself a "no-load" fund in its marketing literature. Front-end and [back-end loads](https://www.investopedia.com/terms/b/back-end-load.asp) are not part of a mutual fund's [operating expenses](https://www.investopedia.com/terms/o/operating_expense.asp) and are typically paid out to the selling broker and the broker-dealer as a commission. However, level-loads, called [12b-1 fees](https://www.investopedia.com/terms/1/12b-1fees.asp), are included as operating expenses. Funds that do not charge a load are called no-load funds, which are typically sold directly by the mutual fund company or through their partners.

Investors may automatically assume no-load funds are the better choice over load funds, but that may not be the case. Fees on load funds go to pay the investor or fund manager who does research and makes investment decisions on the client's behalf. These experts can sort through mutual funds and help investors make smart investment decisions they may not have the skill or knowledge to make on their own. Paying upfront fees can also eliminate the need to sap investment returns by paying continual expense fees on the returns the fund achieves. 

The main disadvantage, of course, is the load itself. No-load mutual funds now exist as options that carry no sales charge.

In the 1970s, mutual fund companies came under criticism for the high front-end sales loads they charged along with excessive fees and other hidden charges. As a result, they introduced multiple share classes giving investors several options for paying sales charges.

*   [Class A Shares](https://www.investopedia.com/terms/c/classashares.asp): Class A shares are the traditional front-end load funds that charge an upfront sales charge on the amount invested. Most class A funds offer breakpoint discounts that reduce the sales charge for purchases at higher thresholds. For investors with larger amounts of money to invest over a long period of time, class A shares can be the lowest cost option due to the breakpoint discounts.
*   [Class B Shares](https://www.investopedia.com/terms/b/bshare.asp): Class B shares include a back-end load or [contingent deferred sales charge](https://www.investopedia.com/terms/c/cdsc.asp) (CDSC), which is deducted when selling the shares. Class B share funds do not offer breakpoint discounts, although the CDSC decreases over a five- to an eight-year timeframe. At that point, the shares are converted to class A shares with no back-end load. Some class B share funds also charge annual 12b-1 fees, which can increase investment costs over time. When Class B shares are converted to Class A shares, the 12b-1 fees go away. Class B shares with a low expense ratio can be a better option when smaller investments are made with a long holding period.
*   [Class C Shares](https://www.investopedia.com/terms/c/cshare.asp): Class C share funds also charge a CDSC, but it is typically lower than Class B shares. Class C shares rely more heavily on 12b-1 fees, which tend to be higher than Class B shares, and they can last indefinitely. Class C share funds do not offer any breakpoint discounts. Because of higher 12b-1 fees, Class C shares can be the most expensive option over the long term.