Do You Pay a Front Load on a Mutual Fund Every Time You Put in Money?

Load-type mutual funds are sold by brokers and investment advisers.
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If the mutual fund you own is a front-loaded fund, then each additional investment you make will include the sales charge. Not all mutual funds are load funds, so first make sure that your fund falls into the load category. Hint: If you bought the fund through an investment adviser you probably have a load fund. With load mutual funds, you need to be aware of the times when a load is not charged and the steps you can take to minimize the load bite on your invested capital.

Sales Load Function

A mutual fund that charges a sales load will incorporate the load as a percentage of the price you pay for fund shares. The U.S. Securities and Exchange notes on its website the importance of remembering that a front-end sales load shrinks net effect of the purchase. "For example," it explains, "if an investor writes a $10,000 check to a fund for the purchase of fund shares, and the fund has a (5 percent) front-end sales load, the total amount of the sales load will be $500. The $500 sales load is first deducted from the $10,000 check (and typically paid to a selling broker), and assuming no other front-end fees, the remaining $9,500 is used to purchase fund shares for the investor."

Hitting Breakpoints

Investors who buy load funds do not all pay the same load percentage. If you invest larger amounts, the sales charge percentage goes down. The purchase amounts at which you qualify for a lower sales charge are called breakpoints and -- depending on the fund -- lower loads start at investment amounts of $25,000, $50,000 or $100,000. If your fund investment value gets to a breakpoint you will pay the lower load for additional investments. You can also get the lower load by signing a letter of intent with your broker, stating that you will invest enough over the next year or so to meet a breakpoint threshold.

Distribution Reinvestments

If you choose to have the dividends and capital gains distributions paid by the fund reinvested into more shares, those additional shares are purchased at NAV and no sales charge is paid. The reinvestment of distributions is one of the two ways to buy load fund shares without paying and sales load. The other way to buy without a load is to invest $1 million, a breakpoint level where the load percentage goes to zero.

Exchanging Funds

Once you have money invested in one fund of a load fund family, you can exchange your investment for other funds in the same family and not pay another sales charge. This option can be used if your investment goals change or you are not happy with the performance of your current mutual fund. Investing in a load fund family with a diverse choice of funds could be a benefit to your long-term investment planning.

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