Sales Charge

Sales Charge

A commission or fee paid by an investor at the time of purchasing mutual fund shares. The charge is paid to a mutual fund salesperson or financial advisor and is intended to provide compensation for the financial salesperson's efforts in assisting their client select the mutual fund best suited to their needs. The term is also used when referring to fees associated with stock and real-estate transactions.

Notes:

The amount of a sales charge represents the difference between the purchase price per share paid by the investor and the net asset value per share of the mutual fund. Although these fees are subject to investor criticism, they also provide an effective deterrent to short-term mutual fund trading. If sales charges didn't exist, mutual funds would likely incur more frequent short-term trading (investors buying into the fund and then quickly selling), which would increase the costs of operating the fund and weigh on the profits of all the fund's investors.

See also: Commission, Front-End Load, Mutual Fund, Net Asset Value - NAV, Net Asset Value Per Share - NAVPS, Open-End Fund

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Sales charge

The fee charged by a mutual fund at purchase of shares, usually payable as a commission to a marketing agent, such as a financial adviser, who is thus compensated for assistance to a purchaser. It represents the difference, if any, between the share purchase price and the share net asset value.