These are also known as back-end sales charges and are imposed when investors redeem shares. The percentage charged generally declines the longer shares are held. This charge, often coupled with 12b-1 fees as an alternative to a traditional front-end load, diminishes over time. Understanding a fund's fee structure is essential in determining whether or not a fund is appropriate for your portfolio or investment plan. With a deferred fee an investor has the advantage of getting the full financial power of their investment from the on set.
Investors should note that there are combinations of deferred loads and 12b-1 fee that are costlier than a (typically higher) front-end load. Although contingent deferred sales charges usually decline to zero after a specified number of years, the cumulative 12b-1 fee always compensates any possible loss the fund company might incur by long-term shareholders holding onto their shares until the stated load is zero. The amount invested, and how long it will be invested, should be paramount in the share-class investment decision. Very long-term investors normally do not benefit from deferred load funds, especially deferred load funds that do not convert to the less-expensive front load shares.