Front-End Load

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Definition of 'Front-End Load'

A front-end load is a fee that is charged when you purchase an investment product, such as a mutual fund or an exchange-traded fund (ETF). The fee is typically a percentage of the amount you invest, and it is deducted from your investment before you begin to earn any returns.

Front-end loads can range from 0% to 5.75%, and they are typically higher for funds with higher expense ratios. Funds with front-end loads are often referred to as "load funds."

There are a few reasons why funds charge front-end loads. One reason is to compensate the investment company for the costs of marketing and distributing the fund. Another reason is to provide a "buffer" against potential losses in the early years of the fund's life.

Front-end loads can be a significant expense, especially for investors who are making small investments. For example, if you invest $1,000 in a fund with a 5% front-end load, you will lose $50 of your investment before you even begin to earn any returns.

If you are considering investing in a fund with a front-end load, it is important to weigh the benefits of the fund against the cost of the load. You should also consider whether there are other funds with similar investment objectives that do not charge a front-end load.

In addition to front-end loads, there are also back-end loads and 12b-1 fees. Back-end loads are fees that are charged when you sell an investment product. 12b-1 fees are annual fees that are used to cover the costs of marketing and distribution.

It is important to be aware of all of the fees associated with an investment product before you invest. By understanding the fees, you can make an informed decision about whether or not the investment is right for you.

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