What is a "back-end" load fee in mutual funds?

A "back-end" load fee refers specifically to a fee that is charged to investors when they sell shares of a mutual fund after a specified holding period. This type of fee is often designed to discourage short-term trading and encourage long-term investment in the mutual fund. The back-end load is typically structured to decrease over time, meaning that if an investor sells their shares after holding them for a longer period, the fee incurred will be less than if they sold them shortly after purchase.

This structure aligns the incentives of the mutual fund manager with those of the investor by promoting commitment to the investment strategy. It contrasts with upfront or front-end load fees, which are charged at the time of purchasing shares in the fund. Understanding the implications of back-end load fees is important for investors as it affects their overall returns, particularly if they need to access their investments in the short term.