Sales Charge

Sales charges (or loads, as they are lovingly called in the industry) are just commissions customers pay when they buy mutual funds. But because there are so many ways in which to pay these commissions, they have become a whole trivia contest catalog on their own.

In the good ol’ days, things were simpler. Mutual funds were paid in a load up front. You bought $1,000 worth of a fund, paid 50 bucks for the privilege, and then the professionals you hired went to work with your remaining 950 bucks to make it grow. But then came breakpoints: basically, volume discounts as they apply to the pricing of those commissions. The more you invest, the smaller percentage you pay in commission.

Then came "no load" funds which, instead of charging, say, 5% up front and then investing that $950 under a fee structure of 1% a year, they started investing $1,000 with no commission up front, but instead customers would pay a 2% a year commission. So over time, if mutual fund buyers held that fund 5 years or more, they paid more than they would have even in the most onerous of load situations. Like, no load doesn't mean no commission or fee or sales charge.

Why is it called a load anyway? Well, the commission itself detracts from the total amount of capital being invested, which then has to grow, and presumably beat the market. If a mutual fund investment house isn’t, in fact, beating the market...then mathematically, there is no reason to buy the fund, because investors can simply buy the market in investing in index funds, or ETFs.

So the load is essentially a natural headwind against the sails of that mutual fund, or a couple of heavy rocks in the backpack of a hiker, as they begin to scale Mutual Fund Mountain, Disney’s least popular ride.