What Is the Difference Between Load and No‑Load Mutual Funds?
Some funds impose sales charges and some don’t, but there’s more to it than that.
Mutual funds can broadly be categorized as those that impose sales charges (load) and those that do not (no load). While the term “load” may sound strange, it principally refers to a sales commission that is paid to a financial advisor, broker or other intermediary who helps clients make decisions about which mutual fund to purchase.
Loads are just one part of the overall picture—investors, particularly those investing for the long term, should consider all costs associated with investing, including management fees, as well as potential returns, investment goals and risk tolerance before making a decision. Loads come in a variety of types, some of which might actually fit in with investors’ strategies and goals.
There are two types of load funds: front-end and back-end, which usually charge higher expenses. A front-end load means the fee (generally between 3% and 6% of the investment, or sometimes a flat fee, depending on the provider) is charged upon purchase of the mutual fund. A back-end load, also known as a contingent deferred sales charge, means the fee is charged when an investor redeems the mutual fund. The fee usually starts at 5% for investors who redeem shares within a year and declines by a percentage point each year after until the fee is eliminated.
No-load funds are those that investors can buy and sell at any time without paying a commission or sales charge, although they often have higher expense ratios, as they must pay for advertising, marketing and other distribution activities. However, some firms, such as banks and broker-dealers, charge their own fees (such as transaction fees) for the purchase and redemption of third-party mutual funds. Many no-load mutual funds also charge fees that are not sales loads, such as redemption fees, exchange fees and account fees.
American Funds has traditionally offered load funds (Class A, C and now T shares), but has more recently started offering no-load versions of our funds (although third-party advisors will still charge clients fees). In 2001, American Funds launched the F-1 share class, which has no load, and in 2008, we launched the F-2 share class, which has no load or 12b-1 fees. In 2017, we launched the F-3 share class, which has no load, no sub-transfer agency fees or 12b-1 fees.
Class F (1-3)
No load, advisor-sold only
Annual asset-based fee charged by financial professional; while Class F-1 shares have a 12b-1 fee, Class F-2 shares do not; Class F-3 shares do not have 12b-1 or sub-transfer agency fees
Maximum loads are 2.5% for short‑term bond funds and 5.75% for equity funds; declines as the investment amount increases
Level load (flat fee)
No up-front sales charge, but 1% fee if redeemed before holding 12 months; 12b-1 fee is 1% per year; convert to Class F-1 shares after 10 years
Class R (1-6)
No front-end or back-end load, institutional only
No 12b-1 fee for Class R-5E, R-5 and R-6 shares; ranges from 0.25% for R-4 shares to 1% for R-1 shares
Our funds, which have multiple share class options, are designed to fit most investment goals, time horizons and other key considerations. Unlike many providers, American Funds are not sold directly to investors; rather, investors must purchase them through a broker, financial advisor or other intermediary or plan sponsor. Our funds are distributed through financial professionals because we believe that all investors benefit from ongoing professional advice.
We recognize, though, that investors have different preferences for paying for that advice. No matter which share class they choose, American Funds annual expenses are among the lowest for comparable funds in the same share class, according to Lipper. We recommend investors work with a financial advisor to determine which share class to own, how long they expect to own the shares, their investment objectives, how much they plan to invest and the expenses associated with each share class.