The maximum “initial burden” or sales charge that may be associated with buying mutual fund shares. This fee compensates a financial professional for their services. By law, this fee cannot exceed 8.5 percent of the investment, although most fund families charge less than the maximum. The SEC doesn't limit the size of the sales load a fund can charge, but the NASD doesn't allow mutual fund sales charges to exceed 8.5%.
The percentage is lower if a fund imposes other types of charges. Most funds don't charge the maximum. Brokers who facilitate mutual fund transactions must follow certain guidelines to establish sales burdens. Specifically, FINRA regulations limit the maximum sales charge that can be applied to 8.5%.
Sales charges can be set at any point within that limit over and over again, whether an initial or secondary commission is applied, and the amount usually depends on the fund's stock class. Class A equity funds usually charge initial sales charges, while class B stock funds usually have secondary fees. The “Deferred Sales Fee (Charge)” category of the commission table refers to the sales burden that investors pay when they exchange shares in a fund (i.e., they sell their shares back to the fund). Final sales loads are usually based on what you initially invested, not on what stays after the sale.
Uncharged funds may also charge account maintenance fees, purchase fees and exchange fees if you decide to make a transfer to another fund in the same fund group. If you need help making sure that fees and other charges aren't diminished by commissions and other charges, a financial advisor can help you maximize the efficiency of your portfolio. However, as described above, not all types of shareholder commissions are a sales burden, and an unencumbered fund may charge commissions that are not sales burdens. Unlike the sales burden, which is used to pay brokers, the reimbursement fee is normally used to defray fund costs associated with reimbursing a shareholder and is paid directly to the fund, not to a broker.
Free mutual funds offer an alternative way to invest, but they can also involve fees that are important to consider. For example, a contingent burden of deferred sales could be 5% if an investor holds the shares for 1 year, 4% if the investor holds the shares for 2 years, and so on until the burden completely disappears. Investors should carefully read a fund's prospectus to determine if the fund calculates its final sales burden in this way. For investors, this means that their actual investment in the fund is equal to the difference between the investment value per share and the total cost of selling.
The most common type of back-end sales burden is the contingent deferred sales burden, also known as CDSC or CDSL. While a reimbursement fee is deducted from trade-in revenue, just like a deferred sales burden, it is not considered a sales burden. A buying commission differs from, and is not considered to be, an initial sales burden because the buying commission is paid to the fund (not to a broker) and is usually imposed to defray some of the fund costs associated with the purchase. .
A sales fee is a commission that investors pay for an investment in a mutual fund to the financial intermediary, such as a broker, financial planner or investment advisor, responsible for making the transaction. Some funds cover the costs associated with transactions and an individual investor's account by imposing commissions and charges directly on the investor at the time of transactions (or periodically with respect to account fees). .