 Personal Finance PowerPoint Presentation, Load Fund. Prepare to get financially fit by practicing personal finance. Most of this information comes from Investopedia Load Fund, which you can find online. Take a look at the references, resources, continue your research from there. This is by James Chen, updated April 30th, 2022. In prior presentations, we've been taking a look at investment goals, strategies, tools, keeping in mind the two major categories of investment, that being the fixed income, typically the bonds, and the equities, typically the common stock. Also keeping in mind the different tools we might be using, such as mutual funds and ETS, helping us to pool, diversify, as opposed to say investing in individual stocks, individual bonds. Keeping that in mind, we're asking, what is a load fund? A load fund is a mutual fund that comes with a sales charge or commission. The fund investor pays the load which goes to compensate a sales intermediary such as a broker, financial planner, 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, a front-end load, the shares are sold back-end load, or as long as the fund is held by the investor, the level load. So load funds may be contrasted with no load funds which do not carry a sales charge. So let's go through those loads one more time. So once again, the load is either paid upfront at the time of purchase. We're going to call that the front-end load. When the shares are sold, so that's going to be the back-end load, because that's later in the process when you're selling the share, or as the fund is held by the investor, that's going to be the level load. Okay, keeping that in mind, understanding load funds. If a fund limits its level load to no more than 25%, that's the one that goes as you're holding the fund. I'm sorry, it's 0.25%. 0.25%, the maximum is 1%. It can call itself a quote, no load, end quote fund in its marketing literature. I love that term, marketing literature. It's like a novel or something. But in its marketing literature, it's going to be the no load. That's once again 0.25%. So front-end and back-end loads are not part of a mutual funds operating expenses and are typically paid out to the selling broker and the broker dealer as a commission. So when we think of the broker, you might be familiar with a broker and like a home kind of sales type of transaction that's acting as your agent in order to help you to facilitate the sale and purchase and sales processes here. However, level loads called 12B1 fees 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. So obviously if we had a no-load fund, we'd say, hey, we're not paying these expenses or these charges. That would typically be good, you would think in general. 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. So it's going to depend in part, of course, on the level of activity that you want to be in terms of an active investing in order to decide which funds would be most appropriate for you in a similar kind of process as like selling a home or purchasing a home or something like that. How much expertise would you like to pay someone to basically help you through that process in general might be a consideration. So paying upfront fees can also eliminate the need to sap investment returns by paying continual expense fees on the returns that funds achieve. So 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. So you got class A shares. 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. Then you got the class B shares. Class B shares include a back-end load or contingent deferred sales charge, that's the CDSC, which is deducted when selling the shares. Now you're going to hold on to the shares, you're going to sell the shares, and that's when they hit you with it. So class B shares funds do not offer breakpoint discounts, although the CDSC decreases over a five- to an eight-year time frame. So at that point, the shares are converted to class A shares with no back-end load. Some class B shares funds also charge annual 12B1 fees, which can increase investment costs over time. When class B shares are converted to class A shares, the 12B1 fees go away. Class B shares with a low-extense ratio can be a better option when smaller investments are made with a long-holding period. So class C shares, so again, notice that when you're thinking about the investment strategies, you're thinking you might get a bigger benefit sometimes on the fees if you're able to invest more. So we said in the class A here you could have a benefit if you have more money that's going to be invested, whereas the class B's have that back-end. So if you don't have the money to invest as much in the class A generally, you might be able to hold the class B, and if you're holding it on for a long period of time, they're saying here, my interpretation being the class B could convert then to class A, which means you might get a similar kind of benefit to the higher type of investments on the class A, which have the lower fees by basically holding on to them for the long-term timeframe with a lesser upfront investment. It's my interpretation. So class C shares, class C shares funds also charge a CDSC, but it's typically lower than the class B shares. Class C shares rely more heavily on 12B1 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 12B1 fees, class C shares can be the most expensive option over the long-term.