Front-End and Back-End Load

A load is a sales charge that some mutual funds apply when you buy or sell. A front-end load is charged when you purchase the fund, and a back-end load (also called a deferred sales charge, or DSC) is charged when you sell.

Front-end loads

A front-end load is taken off the top of your investment when you buy in. If a fund has a 2% front-end load and you invest $10,000, only $9,800 actually goes into the fund. The other $200 goes to the advisor or dealer who sold it to you.

In practice, front-end loads in Canada are often negotiable. Many advisors will reduce or waive them entirely, especially for larger investments. But it’s worth asking, since the full amount isn’t always necessary.

Back-end loads (DSC)

Back-end loads work differently. You don’t pay anything when you buy, but if you sell before a certain number of years (usually 5 to 7), you’re charged a fee. The fee typically decreases over time. You might pay 6% if you sell in the first year, 5% in the second, and so on until it drops to 0%.

This structure was controversial because it locked people into funds they might want to leave. As of June 2022, Canadian securities regulators banned the sale of mutual funds with DSC options to new investors.

Why it matters

Most modern mutual funds sold in Canada are “no-load,” meaning they don’t charge front-end or back-end fees. But if you hold older mutual fund investments, it’s worth checking whether a DSC schedule still applies before you sell.