Posted in Finance, Accounting and Economics Terms, Total Reads: 399
Definition: Sales Charge
It is the commission which the investor gives for his or her investment in a mutual fund. This commission is paid to a financial intermediary who may include broker, financial planner, and investment adviser.
This commission includes compensation for the financial salesperson's efforts in helping clients in selecting the mutual funds best suited to their needs and for selling the fund.
A large number of mutual funds carry sales charges which is the difference between the purchase price per share paid by the investor and the net asset value per share of the mutual fund. By regulation, the maximum sales charge on the mutual fund is 8%, but most of them fall within a 3-6% range.
Mutual funds that carry a sales charge can be classified into three classes of shares: A, B, and C. The letter associated with them indicates the timing of when the charge is to be paid.
Class A shares require sales charges to be paid at the time of purchase (front-end load).Class B shares require charges to be paid when the shares are sold (back-end load). While Class C require sales charges to be paid on a regular basis for as long as investor holds the fund.