SHARETIPSINFO >> Articles Directory >> Backend Load – Know More about it relevance in Indian stock market

 

When people become interested in running mutual funds, there are quite a large number of jargons that create confusion in their minds. To understand the world of shares and mutual funds, understanding these terms has a great place. One of the most important terms associated with mutual funds is loads. The purchase of sales requires a certain amount as commission which is usually defined by the term load. There are different types of loads in share market.

Backend load or deferred sales charge as it is often called is mainly incurred while selling shares. The amount flowing in this way is usually taken away by the brokers. The fund’s shares are being sold by the brokers and hence the back end load ultimately reaches the brokers. The amount of this load depends on the duration for which the investor is holding the shares. The value depreciates to zero if the investor is keeping the share for a long time.

Back end loads are usually paid by all investors. This is a fee that is paid by the investors. It is usually paid when the investor is trying for withdrawal. He can withdraw either the complete invested amount or a partial withdrawal is also acceptable.

Mutual funds and annuity investments usually include back end loans. The method of calculation of back end loads is dependent on several factors. The first prominent factor is the fund that the investor withdraws from the mutual fund. Secondly it is being affected by the duration for which the investor holds the shares. If the investor is holding the share for a long time, the value of the back end loan falls. The third factor that can affect the back end loan is the type of the investment. If the investor is going for a mutual fund, the back end loan tends to be stable. But in case of annuity investments, the back end loans tend to be fluctuating.

When an investor is making investment and the investment is growing in the initial stages, there are no fees charged on the investor. The withdrawal or the investment of money is truly dependent on the investor’s interests. He can remove the funds or leave it as such, the decision being completely at his disposal.

Mutual funds are used as a source of revenue in the retirement age by most investors. For them, the back end loan acts as a support amount. The fees are paid only in reasonable charges and the investor needs to pay the fees only when the situations are demanding.

 

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