4. Loads

As an investor, you may be subject to some hidden costs when selling or buying certain types of mutual funds. These fees are called loads, and they can be paid at the time of sale (back-load) or at the time of purchase (front-load).

For instance, with a front-end load of 3% on a $5,000 investment, $150 goes into the sales fee, and $4,850 will be invested.

Back-end loads are redemption charges, or deferred sales charges, that arise when a fund is sold before a certain date. These types of loads tend to be lower the longer a person delays selling the fund. According to Morningstar, in the first year, back-end loads start at about 5 to 7%. They go down to 0% in the following five to seven years.

It’s important to point out that not all mutual funds come with these kinds of hidden costs. So if possible, choose a no-load fund instead.