What Is a Deferred Load?

A deferred load is a type of expense that is incurred by an investor when he or she makes a decision to sell certain types of assets before a specific date. The amount of the sales charge or load will vary, depending on the amount of time that transpires between the date that the asset was purchased and when the investor decides to sell off that security. Typically, the deferred load is calculated as a percentage of either the purchase price or the current market value of the sold asset. In some cases, investors may hold an asset for an agreed-upon period of time then sell that security without incurring any type of sales charge.

It is not unusual for a deferred load to be determined using some sort of sliding scale that takes into account both the value of the asset and the amount of time that the investor has owned that security. With most arrangements that call for an investor to hold an asset for a period of time, such as five years, the scale will show a deferred load that decreases the longer that the asset is held. Once the investor passes the time frame in which the asset must be held after purchase, it is possible to then sell the asset without having to pay any type of load.

The purpose of the deferred load is to manage expenses when investors choose to sell off assets at some point before the terms associated with the original purchase. For example, if an investor buys shares with the understanding that they are to be held for a period of three years and then decides to sell them at the two-year mark, a sales charge will be imposed that aids in covering the costs of transferring the shares to the new owner. While a deferred load does not prevent an investor from selling shares, it can be enough to cause investors to not trade off investments hastily, since doing so would invoke the charge.

As the investment market continues to evolve with additional ways to generate returns from different types of assets, the use of a deferred load is becoming less common. While this is a benefit in many cases, it also creates a situation in which newer investors may not be aware of this type of sales charge and inadvertently be assessed a deferred load by selling shares before the time limit associated with the original purchase. For this reason, always reading all the terms of the purchase and specifically determining if any sort of sales charge may be assessed if the securities are sold within a certain time frame is highly recommended.