A back-end load is when the investors pay a fee in the shares of the mutual fund. Then, it is expressed in terms of the value of shares of the fund. According to the above case, in the first year, the percentage is highest and decreases before it decreases to zero.
According to Investopedia, here are things you can learn about a back-end load and its advantages.
The Definition of Back-End Loads
A contingent deferred sales charge is a category of back-end load based on the time of holding. Back-end loads are also known as selling charges on the back end. Another word is an exit charge for a back end load.
Back- loads typically turn up when a fund provides various types of stock. Class A shares normally charge a load at the front end while Class B and Class C shares usually bear a load at the back end.
Funding for share classes generally includes selling costs (as opposed to no- funds). The chosen class decides the fee structure an investor becomes paying.
In addition, a back-end load should not be confused with a credit for the redemption. Several mutual funds charge a fee for redemption to deter regular trading . And also, it may interfere with the investment objective of the fund.
Fee Structures in Various Kinds of Share Classes
There are 3 kinds of fee structures in share classes. Commonly, Class A shares incur a front-end load that comes from the initial investment. Usually, Class B shares lack the front-end load. Instead, they can bear a back-end load that is paid when the investor redeems its shares in the mutual fund.
Shares in Class C are considered a form of level-load fund. They usually charge no front-end charges but charge small back-end charges. Class C shares, however, tend to bear higher operating costs. The load is billed to a financial intermediary in all situations, and is not included in the operating costs of a company.
Advantages of Back-End Loads
After you know the definition and the class shares, now you need to know the advantages of back-end loads. Firstly, Back-end loads prevent premature early withdrawals and over trading. Secondly, in comparison to front-end loads, investors will also prevent back-end load charges by keeping the fund for 5-10 years.
