What is a loaded mutual fund?
A loaded mutual fund is a mutual fund whose shares can only be acquired by paying sales charges. These charges might be collected up front at the time of purchase, later on upon sale, or daily during ownership. Loads have nothing to do with fund management, fund administration or service. Plain and simple, these fees are commissions paid to salespeople who make no contribution to your financial improvement.
Years ago, loaded mutual funds were the predominant way individuals acquired diversified portfolios. With neither computers nor access to the exchanges, investors had to deal with local representatives. Sales fees charged for loaded funds were an accepted cost of distribution.
With easy access to the internet, fund companies and discount brokers, you can buy shares of no-load mutual funds and other cost-efficient vehicles as easily as books and shoes. There is no reason to waste away your assets shelling out commissions. When you have a major problem with a sink you call a plumber. You don’t pay a salesperson to send the plumber.
Over the years, Wall Street has become ever more creative in finding new ways to charge and hide fees. The next three chapters address the most common forms of loaded funds: A-, B-, and C-shares.