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Load



Definition

In finance, a “load” refers to a sales charge or commission applied to an investment, such as mutual funds. Often used to compensate a broker or investment advisor, loads can either be front-end (charged upon purchase of the investment) or back-end (charged upon sale of the investment). The amount is generally a percentage of the investment’s total value.

Phonetic

The phonetics of the keyword “Load” is /loʊd/.

Key Takeaways

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Importance

The finance term “load” is crucial as it refers to the sales charge or commission an investor pays when buying or selling mutual fund shares, making it an essential factor in investment decisions. The load directly influences the cost of investment and thus, potential returns. For a load fund, the investor pays an upfront, deferred, or back-end fee (depending on the type of the load – front-end or back-end), which reduces the investment’s actual amount. These fees are used to compensate brokers or financial advisors for their time and expertise in choosing the right fund. Understanding loads enables investors to account for additional costs in their investment strategy and choose between load and no-load funds based on cost-effectiveness. Therefore, the concept of load is vital in the business/finance field.

Explanation

The term “load” in financial parlance refers to the sales charge or commission that an investor pays when buying or selling an investment, such as mutual funds. From the perspective of investment firms and mutual fund companies, the primary purpose of a load is to compensate financial intermediaries, such as brokers and financial advisors, for their time and expertise in selecting appropriate funds for the investor to buy or sell. These loads facilitate a smoother transaction process by providing a monetary incentive to intermediaries to guide clients in the right direction.The load serves as a critical source of revenue to these intermediaries for providing invaluable advice and managing the client’s investment portfolio effectively. Most importantly, the advice that experienced brokers and advisors offer can help lead investors towards opportunities they may not have identified or, conversely, away from potential risks. While no-load funds may appear financially appealing, investors who aren’t familiar with the market intricacies could potentially benefit from the guidance that loaded funds, through their advisory, offer. It’s the reassurance of having a knowledgeable professional managing your investments that often justifies the cost of the load.

Examples

1. Mutual Funds: If you’re investing in a mutual fund, a “load” is a fee or commission you pay either when you first buy shares (front-end load) or when you sell them (back-end load). For instance, if you invest $1000 into a front-end load mutual fund with a 5% load, you will actually be investing $950, while $50 goes to the broker as commission.2. Insurance Policies: In the world of insurance, load is the amount charged over and above the cost of the risk covered. It’s generally the amount that the insurance company adds to the pure premium for other expenses, contingencies or profit. For example, if an insurance company determines that the pure risk of insuring your house is $1,000 annually, it may add a load of 20% ($200) to cover administrative costs, giving a final premium of $1,200.3. Purchasing Real Estate: When purchasing a property, buyers often pay a variety of fees, such as origination fees, recording fees, survey fees, etc. In some sense, these can be considered as “load” fees because these are the costs above and beyond the actual price of the property itself akin to load in a mutual fund, which is the fee you pay for buying it, over and above the actual value of the investment.

Frequently Asked Questions(FAQ)

What does the term ‘Load’ refer to in finance and business?

Load, in financial terms, often refers to the sales commission charged to an investor when buying or redeeming shares in a mutual fund. It is generally a percentage of the investment amount.

What are the different types of Load?

The two main types of load are ‘Front-end Load’and ‘Back-end Load’. Front-end loads are commissions paid when shares are purchased and Back-end loads are paid when the shares are sold.

How do loads affect my investments?

Loads directly reduce the amount available for investment or increase the amount needed. For example, if you invest $1000 in a mutual fund with a 5% front-end load, the total amount invested in the fund will be reduced to $950.

I own shares in a no-load fund. Can I be charged a load fee later on?

No. Once shares are bought in a no-load fund, they will never be subject to any kind of load fee.

Is it better to invest in no-load funds as compared to loaded funds?

Irrespective of whether a fund is no-load or loaded, the main deciding factor for investment should be the fund’s performance and how it aligns with your goals. It’s also advisable to consider other costs associated with the fund, such as annual fees, in addition to loads.

Can loads be avoided or reduced?

Yes, loads can often be reduced or avoided by choosing no-load funds or by doing a direct investment through the mutual fund company.

Are load charges tax deductible?

Load charges for mutual funds are generally not tax-deductible. However, tax laws can vary, so it’s recommended to consult a financial advisor or tax professional.

How can I find the load on a particular mutual fund?

The load information for a mutual fund is typically found in the fund’s prospectus, usually under the fee table section. It can also be accessed from financial websites and your financial advisor.

Related Finance Terms

Sources for More Information


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