Sales charge (load)
Also known as: load, sales load
A sales charge, or load, is the fee an investor pays to buy or sell mutual fund shares, compensating the salesperson and distributor. It equals the difference between the fund's public offering price and its net asset value.
A sales charge — commonly called a load — is the commission built into a mutual fund transaction. It compensates the underwriter and the selling broker-dealer, and it is the reason an investor in a load fund pays a public offering price (POP) that is higher than the fund's net asset value (NAV) per share.
The sales charge formula follows directly: sales charge = POP − NAV, and the sales charge percentage is (POP − NAV) ÷ POP. Note the denominator — the percentage is calculated against the offering price, not the NAV. For example, a fund with an NAV of $9.50 and a POP of $10.00 carries a $0.50 sales charge, which is 5% of the $10.00 offering price. Rearranged, POP = NAV ÷ (100% − sales charge %).
Loads come in several forms. Front-end loads (Class A shares) are charged at purchase, often with breakpoint discounts for larger investments. Back-end loads, or contingent deferred sales charges (Class B shares), are charged at redemption and typically decline the longer the shares are held. Level loads (Class C shares) skip the large upfront charge but carry higher ongoing 12b-1 fees. Under FINRA rules, the maximum sales charge on a mutual fund is 8.5% of the offering price.
The SIE exam tests sales charge mechanics as part of open-end fund transactions: be ready to compute the sales charge percentage from NAV and POP, solve for the POP given a sales charge percentage, and recognize the 8.5% maximum and the differences among share classes.
Key takeaways
- A sales charge (load) is the fee for buying or selling mutual fund shares, equal to POP minus NAV.
- The sales charge percentage is (POP − NAV) ÷ POP — always divided by the offering price.
- Class A shares charge front-end loads, Class B shares charge declining back-end loads, and Class C shares use level loads.
- FINRA caps mutual fund sales charges at 8.5% of the public offering price.