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Simple English definitions for legal terms
load fund
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A quick definition of load fund:
A load fund is a type of mutual fund that charges a commission when shares are purchased or redeemed. This commission usually ranges from 4 to 9%. In contrast, a no-load fund does not charge any sales commission, although it may charge fees to cover operating costs. Mutual funds are investment companies that pool money from shareholders to invest in a diversified selection of securities, such as stocks and bonds. There are different types of mutual funds, including balanced funds, bond funds, growth funds, income funds, index funds, and utility funds, among others. Each type of fund has its own investment strategy and objectives.
A more thorough explanation:
A load fund is a type of mutual fund that charges a commission when shares are purchased or redeemed. The commission usually ranges from 4 to 9%. There are two types of load funds: front-end load and back-end load.
- Front-end load: A mutual fund charges a 5% commission when an investor buys shares. If an investor invests $1,000, $50 will be deducted as a commission, and the remaining $950 will be invested in the fund.
- Back-end load: A mutual fund charges a 6% commission when an investor sells shares within the first year of purchase. If an investor sells $1,000 worth of shares, $60 will be deducted as a commission, and the remaining $940 will be returned to the investor.
These examples illustrate how load funds charge a commission, which reduces the amount of money an investor can invest in the fund. This commission is paid to the broker or financial advisor who sells the fund to the investor.