What is the difference between a 'no-load' fund and a front-end loaded fund?

• A. No-load funds have a sales charge at purchase; front-end loaded funds have none.
• B. No-load funds have no sales charges on purchase or redemption; front-end loaded funds charge a sales charge at purchase.
• C. No-load funds charge a redemption fee; front-end loaded fund charges a fee on purchase.
• D. No-load funds require a minimum investment; front-end loads do not.

Answer: (B)

The difference being tested is how and when a sales charge is paid. No-load funds do not require a sales charge when you buy or when you redeem shares; you invest at the fund’s net asset value (NAV) and pay only ongoing fees (like the management expense ratio). Front-end loaded funds, on the other hand, charge a sales load at the time you purchase shares, which reduces the amount actually invested in the fund. For example, with a front-end load of 5%, a $1,000 investment would place $950 into the fund, with $50 taken as the sales charge. The up-front cost is the key distinction: no upfront charge in no-load funds vs a upfront charge in front-end loaded funds.