Sunday, December 26, 2010

Sales Charge

A sales charge or load is an amount that some funds charge initial investors in a fund. Typically this will be for funds that are sold through brokers or other sales professionals; the purpose of a sales charge is to pay the broker a commission to encourage them to sell the product. In the US the regulations permit sales charges of up to 8.5 percent of an investment purchase. The sales charge will vary by fund, and will end up reducing the investor's capital on day one. Investors need to be careful of paying too much fees upfront because of this erosive effect on their capital; however it may be justified if the fund performance is particularly consistently strong, or if there are additional services - in some sense it is also justified if the investor would not have otherwise been enticed to invest i.e. sales charges may increase individual's propensity to invest and save. However with all fees, investors need to be aware of each and every fee that a fund charges, and weigh up the costs and benefits before proceeding.

Synonyms: Load, Upfront fee, Load fee, Sales fee, Commission

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