Front end load is a commission or sales fee that an investor has to pay when he purchases an investment. Front end load is usually applicable to mutual funds and insurance policies. The amount is paid to the intermediaries of the transaction, such as a broker, financial planner or investment advisor, as commission.
Front end load reduces the total size of the investment. For example a front end load of 5% means that if you invest $100 you can get only $95 worth shares of a fund. These sales charges are not a part of the fund’s operating expenses and thus make no difference in expense ratio. When evaluating the portfolio performance, front end load can create a big difference. Front end load can differ with funds and also differ if the fund is included in a retirement plan like 401(k) or so.
There is always a debate regarding investing in front end load funds against investing in no-load funds. Statistics shows that front end load funds do not outperform no-load funds. Thus it is often advised to stay away from them if you can find a good no-load counterpart. But there are many funds which consider shares purchased with front end load as Class A shares (know more about different stock classes), or charge reduced sales charges, etc. Thus before investing in these funds one should always carefully review the merits and demerits.
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