I understand that:

  1. Some mutual funds take a percentage of investment upfront. This is called front end load.
  2. Government impose a maximal limit (8%?) on this.
  3. For large investments the fund may reduce this percentage.

My questions:

When 401(k) contributions are invested in mutual funds through a typical plan,

  1. What does "Maximum" mean? Is it related to '3' above?
  2. What happens in case of a typical few hundred dollar monthly contribution?
  3. Is this incurred every month on the monthly contribution allocated to that fund? (probably the last one is a yes.)
  • 3
    You need to talk to your 401(k) administrator. Load fees are usually waived in 401(k) plans, but it really depends on your specific plan. Don't assume that because the fund is listed as having a load/fee in general that it actually does in your 401(k) plan, either. Talk to your plan administrator or read your plan documents.
    – Joe
    May 4, 2017 at 18:05
  • Just to clarify, "Maximum front end load = x.xx%" was listed in the plan document provided by the plan administrator. There were no footnotes or additional conditions mentioned anywhere else in the document. However I was assured by our HR that employees were never charged that. Perhaps the fund info was copied from somewhere else to the document.
    – Aelian
    May 9, 2017 at 1:11

1 Answer 1


Load mutual funds charge the load on each investment at a rate that is specified in the prospectus, and, as you say, there might be reductions in the rate for large investments. The (maximum) rate cannot be increased unless the fund's board of directors votes to make the change, prints new prospectuses and sends them to all current shareholders, etc. Many mutual funds do not charge the load, or reduce the load, for re-investment of the capital gains and dividends paid by the fund back into the fund. Some load mutual funds charge at a reduced rate (or even waive the load entirely) for investments made through 401(k) plans or 403(b) plans etc, but this is plan-specific, what your company's 401(k) plan administrator was able to negotiate with the mutual fund might be different from what another company's plan administrator was able to negotiate with the fund. Your 401(k) paperwork will tell you exactly what the rate is going to be charged for your investments in the fund through your 401(k) plan.

So, what happens to your monthly investment of a few hundred dollars? Of the (say) $200 dollars that you are contributing, a fixed percentage (say 5% or $10) will be deducted as the load that will disappear into the pockets of the mutual fund management or the 401(k) administrator (not your employer or the HR department, but the 401(k) plan administrator company), and $190 will be used to buy shares in the mutual fund. If you choose to invest in a different no-load fund offered by your 401(k) plan, all $200 will be used to buy shares for you.

In addition to any loads that the mutual fund might be charging, the 401(k) plan administrator might be charging a fee (often annually or semi-annually, or perhaps even monthly) to cover its own costs. These might be at as much as a 1% annual rate (maybe more) applied to the value of your 401(k) account, and possibly subject to a minimum fee of a few tens of dollars for very small accounts, etc., and these fees are deducted from your 401(k) account. Once again, this is plan-specific, depending on what your employer was able to negotiate with the 401(k) plan administration company. This fee is not charged on each monthly contribution you make per se; it is on the net value of the total investment (that is, you are paying this fee on everything in your 401(k) plan, all current contributions and all the gains that have occurred over the years, etc.) and you are paying it every year, and you will continue to pay it even if you leave your current job (or are fired) and leave the 401(k) plan assets with your ex-employer (instead of rolling them over to the 401(k) plan of your new employer or into an IRA). Note that this is quite different from the fees (expense ratio) that the mutual fund is (also) charging you which fee you don't see explicitly because it is hidden in the fund return: the value of your investment that the fund reports to you is reduced by this fee already. The fee that the 401(k) plan administrator is charging is all too visible in the reports that you get from your 401(k) plan.

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