What Are the Benefits of Front Load Vs. Rear Load Mutual Funds?

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All mutual funds have fees and expenses associated with defraying normal operating costs, and some mutual funds have sales charges while others do not. Those that do are known as "load" mutual funds--that is, they charge a load to purchase their shares. These charges are paid in several ways: up front, at the end or along the way.

Sales Charges

Dealer concessions (sales charges) are transaction fees paid to brokerage firms by the mutual fund company as compensation. These concessions are used by the brokerage to pay overhead and the adviser's commission.

"A" Class and "B" Class shares

"A" and "B" class mutual fund shares are also known as front- and back-loaded shares. Front-end loads are deducted from the purchase principle, and back-end loads are paid upon redemption.

"C" shares

"C" shares have a level load which is paid continually. These shares are less commonly used.

Front-End Load Benefits

"A" shares have lower operating expenses once the initial sales charges is paid, and breakpoints (volume discounts) at certain levels reduce the sales charge. Due to the initial load, however, these shares are more suitable for investors with long time-frames and larger amounts of investment.

Back-End Load

"B" shares are suitable for those with less initial capital. Also known as a contingent deferred sales charge, the back-end loaded shares carry a higher total operating expense for the first several years before converting to "A" shares. The extra capital that's initially available for earning returns may offset the higher expenses.