I avoid mutual funds with loads at all costs.
A load is just another term for a sales commission or sales fee for a mutual fund. It’s paid by the mutual fund to a broker whenever they sell shares of that mutual fund, it’s exactly like a sales commission. It’s a perfectly legitimate way for a broker to make money and many brokers often offer advice free of charge to clients because they can get paid for some recommendations. One of the reasons many people suggest you find a fee-only financial planner or adviser, who charges you by the hour, is because an adviser’s recommendation may be seen as tainted based on who pays the highest commission. Whether you agree or not, I think you can make the argument that someone being paid for their time and not from a fund is more likely to give an unbaised opinion. A commissioned broker isn’t precluded from giving unbiased advice, but play the numbers.
Just so you’re armed with the best information, here are the various types of loads (these all come from the SEC’s list of mutual fund fees):
Sales loads refer to the commission the mutual fund pays brokers for selling shares of their fund. The SEC doesn’t regulate sales loads but FINRA (Financial Industry Regulatory Agency) limits it to 8.5%, which is lowered if there are other charges. Sales loads come in two varieties, front-end and back-end. Front-end sales load means the investor pays the fee when they purchase the fund. A deferred or back-end sales load is one paid when shares are sold/redeemed.
Beware No-Load Funds
One thing to be wary of with no-load funds is that they may hide it by calling it something else like a redepemption fee (which is just like a deferred sales load), exchange fee, account fee, or purchase fee.