Fund loads are fees that investors pay when withdrawing funds from certain investments, such as mutual funds and annuities. The amount of the fee depends on factors such as the amount of funds withdrawn, the length of the investment, and the type of investment. Fund loads are not charged on investments with upfront fees, and they motivate investors to leave their money alone.
Sometimes referred to as a deferred sales charge or redemption fee, the fund charge is an example of a fee that investors typically incur. The fund load is paid at the time an investor chooses to withdraw a portion of the funds associated with an investment. Here is information on how the background charge is calculated.
A fund load is not always charged on every type of investment. Investments that are structured to include payment of an upfront sales charge or commission will generally not be subject to fund loads. Two examples of investments that generally include fund loads are mutual funds and annuity investments.
Calculating the exact amount of bottom loads in a given situation involves several factors. First, there is the total amount of funds withdrawn from the mutual fund or annuity. Second, there is the question of how long the investment has been running. In general, the longer funds have been invested, the lower the fund charge associated with the investment. Finally, the type of investment may also have some bearing on the fund charge that is incurred at the time of withdrawal. Mutual funds tend to be fairly stable in calculating the fund charge, while annuities can vary quite a bit when it comes to the actual amount of the fee.
The fund load generally applies only to investments where no up-front fees are charged. The idea is that there is no point in charging a fee until the investment has started to grow and the investor makes the decision to withdraw all or part of the funds involved in the investment. This process makes it easier for investors just starting to build a portfolio to not worry about constant debits to their account. Because it is understood that there will be a fee when funds are withdrawn from the investment, there is also a motivation to leave the money alone, which may also be in the best interest of the investor.
Working to build mutual funds and annuities is often employed today as a way to establish an egg of savings for the retirement years. Fund loading helps simplify this process by keeping the fees associated with investments reasonable and only applying them when a specific set of circumstances occur. It is usually a very reasonable size and worth the cost when the funds are really needed for an emergency, the fund load ensures that the investor does not feel taken advantage of, while the investment firm still manages to receive compensation for his management efforts.
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