What is a "front-end load"?

A "front-end load" refers to a fee that an investor pays when purchasing shares in a mutual fund. This fee is typically expressed as a percentage of the amount invested and is deducted from the initial investment before any shares are purchased. For example, if an investor wants to invest $10,000 in a mutual fund with a front-end load of 5%, the investor would only have $9,500 invested in the mutual fund after the fee is deducted.

This structure serves as a way for the fund companies to compensate brokers or financial advisors for selling the mutual fund. The timing of the fee, being assessed at the point of purchase, distinguishes it from other types of fees like trailing commissions or redemption fees which may come into play later on.

Other options refer to different types of fees associated with mutual funds but do not accurately describe a front-end load. For instance, a fee charged upon selling mutual fund shares typically pertains to redemption fees or back-end loads. Dividends and management fees relate differently to the operation of the fund and the costs borne by shareholders. Thus, understanding that a front-end load is specifically applied when buying into a mutual fund is key for investors navigating their costs and potential returns.