20:38
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LSDefine
Simple English definitions for legal terms
front-end load
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A quick definition of front-end load:
A front-end load is a type of fee that is charged when you buy shares in a mutual fund. This fee is usually a percentage of the amount you invest and is taken out of your investment right away. It's like paying a fee to get into a theme park. The front-end load is used to pay for things like marketing and sales commissions. Some mutual funds don't charge a front-end load, but they may charge other fees instead.
A more thorough explanation:
A front-end load is a type of commission charged by some mutual funds when investors buy shares. This fee is usually a percentage of the amount invested and is deducted from the initial investment. For example, if an investor buys $1,000 worth of shares in a mutual fund with a 5% front-end load, $50 will be deducted from the investment and only $950 will be used to purchase shares.
Front-end loads are one way that mutual funds generate revenue to cover their operating costs. However, they can reduce the amount of money an investor has available to invest and can make it harder to earn a profit.
For example, if an investor buys $10,000 worth of shares in a mutual fund with a 5% front-end load and the fund earns a 10% return over the next year, the investor's profit will be $450 ($1,000 return minus $50 front-end load).