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Terms To Know

Front-end Load:
A front-end load is a sales charge you pay when you buy shares. This type of load, which by law cannot be higher than 8.5% of your investment, reduces the amount of your investment in the fund. Example: If you have $1,000 to invest in a mutual fund with a 5% front-end load, $50 will go to pay the sales charge, and $950 will be invested in the fund.
Back-end Load:
A back-end load (also called a deferred load), is a sales charge you pay when you sell your shares. It usually starts out at 5% or 6% for the first year and gets smaller each year after that until it reaches zero (say, in year six or seven of your investment). Example: You invest $1,000 in a mutual fund with a back-end load that decreases to zero in the seventh year. Assume that the value of your investment remains at $1,000 for seven years. If you sell your shares during the first year, you will only get back $940 (ignoring any gains or losses). $60 will go to pay the sales charge. If you sell your shares during the seventh year, you will get back $1,000.
The 12b-1 Fee:
One type of ongoing fee that is taken out of fund assets has come to be known as a rule 12b-1 fee. It most often is used to pay commissions to brokers and other salespersons, and occasionally to pay for advertising and other costs of promoting the fund to investors. It usually is between 0.25% and 1.00% of assets annually.

Funds with back-end loads usually have higher rule 12b-1 fees. If you are considering whether to pay a front-end load or a back-end load, think about how long you intend to stay in a fund. If you plan to stay in for six years or more, a front-end load may cost less than a back-end load. Even if your back-end load has fallen to zero, over time you could pay more in rule 12b-1 fees than if you paid a front-end load.


Information Please® Database, © 2007 Pearson Education, Inc. All rights reserved.

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