Also known as a "12b-1 fee".
Unlike the one-time front-end (Class A shares) or back-end (Class B shares) loads, level loads (Class C shares) are applied annually as a fixed percentage of a mutual fund's average net assets. Also, unlike front-end and back-end sales charges, these 12b-1 fees are included in a fund's operating expenses.
While the load percentage doesn't change, if the net asset value of the fund increases through capital appreciation, the dollar value of the load will actually become more expensive and continuously erode the fund's return.
Total 12b-1 fees are capped by law at 1%. Generally, this fee will be pegged at 0.25%, which allows funds that don't exceed this percentage to be classified as no-load funds. This bit of magic, as well as the dubious necessity for the 12b-1 in a robust mutual fund environment, has put the justification for continued use of level load under considerable consumer and regulatory scrutiny.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
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