A back-end load is a fee that investors pay when they sell, or redeem, shares in a mutual fund. This fee, which may also be termed an exit fee or redemption charge, is a percentage of the value of the shares being sold. The term ‘back-end’ refers to the fee being taken out at the end of the investment period rather than at the beginning.
The back-end load is an incentive for investors to keep their money in the fund for a longer period. Typically, the actual percentage of the back-end load decreases the longer the investor holds the shares. For instance, an investor may pay a 5% fee if they sell the shares within one year, but the fee drops to 1% if the shares are kept for five years, and there may be no fee at all if the shares are held for longer than seven years.
Related Questions
1. What is a Front-End Load?
A front-end load is a commission or sales charge applied at the time of the initial purchase for an investment. These charges are typically associated with mutual funds or insurance-based investment products.
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2. How is a Back-End Load calculated?
A back-end load is calculated as a percentage of the selling price or the value of the shares being sold at the time of redemption.
3. Are there Mutual funds without Back-End Load?
Yes, there are no-load mutual funds available. These funds do not charge a front-end load or back-end load. However, they may charge other fees for management and operational expenses.
4. Can Back-End Load fees be avoided?
Back-end load fees can often be avoided or reduced by holding the investment for a certain period, typically several years. Since these fees commonly decrease over time before eventually disappearing altogether, longer-term investors may be able to avoid them.
5. What’s the difference between Back-End Load and Front-End Load?
The main difference between a back-end load and a front-end load lies in when the fee is charged. A front-end load is charged immediately upon the purchase of shares, while a back-end load is charged when the shares are sold.