| No load mutual funds are mutual funds whose | | | | now turning to other kinds of charges. Some |
| shares are sold without a commission or sales | | | | mutual funds sold by brokerage firms, for |
| charge. The reason for this is that the | | | | example, have lowered their front-end loads |
| shares are distributed directly by the | | | | to 5%, and others have introduced back-end |
| investment company, instead of going through | | | | loads (deferred sales charges), which are |
| a secondary party. This is the opposite of a | | | | sales commissions paid when exiting the fund. |
| load fund, which charges a commission upon | | | | In both instances, the load is often |
| the initial purchase at the time of | | | | accompanied by annual charges.On the other |
| sale.Since there is no cost for you to enter | | | | hand, some no-load funds have found that to |
| a no-load fund, all of your money is working | | | | compete, they must market themselves much |
| for you. If you purchase $10,000 worth of a | | | | more aggressively. To do so, they have |
| no-load mutual fund, all $10,000 will be | | | | introduced charges of their own.The result |
| invested into the fund. On the other hand, if | | | | has been the introduction of low loads, |
| you buy a load fund that charges a commission | | | | redemption fees, and annual charges. Low |
| of 5% upon purchase, the amount actually | | | | loads--up to 3%--are sometimes added instead |
| invested in the fund is $9,500. If both funds | | | | of the annual charges. In addition, some |
| return 10%, the no-load fund would have grown | | | | funds have instituted a charge for investing |
| to $11,000 while the loaded fund only rose to | | | | or withdrawing money.Redemption fees work |
| $10,450.The major idea behind a load fund is | | | | like back-end loads: You pay a percentage of |
| that you will make up what you paid in | | | | the value of your fund when you get out. |
| commissions with the solid returns that the | | | | Loads are on the amount you have invested, |
| managers will provide. However, most studies | | | | while redemption fees are calculated against |
| show that loads don't outperform | | | | the value of your fund assets. Some funds |
| no-loads.Most load mutual funds are sold | | | | have sliding scale redemption fees, so that |
| through brokerage houses, financial planners, | | | | the longer you remain invested, the lower the |
| and people known as "Registered | | | | charge when you leave. Some funds use |
| Representatives." With very few exceptions, | | | | redemption fees to discourage short-term |
| most of these people operate on the basis of | | | | trading, a policy that is designed to protect |
| selling as many fund shares as possible. | | | | longer-term investors. These funds usually |
| Their commissions are collected up front, as | | | | have redemption fees that disappear after six |
| a back end charge, or both. Whether you make | | | | months.Probably the most confusing charge is |
| money or lose it isn't their primary concern. | | | | the annual charge, the 12b-1 plan. The |
| What matters most to these folks is how often | | | | adoption of a 12b-1 plan by a fund permits |
| you buy (and generate new commissions for | | | | the adviser to use fund assets to pay for |
| them).No load funds have traditionally been | | | | distribution costs, including advertising, |
| marketed directly by the mutual fund | | | | distribution of fund literature such as |
| companies themselves. But today, more and | | | | prospectuses and annual reports, and sales |
| more funds are being offered through discount | | | | commissions paid to brokers. Some funds use |
| houses like Fidelity, Schwab, and a host of | | | | 12b-1 plans as masked load charges: They levy |
| others. The advantage to this is that you | | | | very high rates on the fund and use the money |
| have an unlimited choice of mutual funds in | | | | to pay brokers to sell the fund. Since the |
| one place. You don't have to open a separate | | | | charge is annual and based on the value of |
| account for each mutual fund family that you | | | | the investment, this can result in a total |
| purchase.Most fee based investment advisors | | | | cost to a long-term investor that exceeds a |
| have independent relationships with the major | | | | high up-front sales load. A fee table is |
| discount firms. They're able to offer clients | | | | required in all prospectuses to clarify the |
| just about any no load mutual fund that is | | | | impact of a 12b-1 plan and other charges.The |
| available. They receive no commissions from | | | | fee table makes the comparison of total |
| the firm and only get paid by the client | | | | expenses among funds easier. Selecting a fund |
| according to a pre-determined fee | | | | based solely on expenses, including loads and |
| arrangement. Under this type of arrangement, | | | | charges, will not give you optimal results, |
| there's no hidden agenda to try to sell you a | | | | but avoiding funds with high expenses and |
| particular mutual fund in order to earn a | | | | unnecessary charges is important for |
| larger commission.It is best to stick with | | | | long-term performance.Copyright 2006 Michael |
| no-load or low-load funds, but they are | | | | SavilleMichael Saville has over twenty five |
| becoming more difficult to distinguish from | | | | years experience in providing finance and |
| heavily loaded funds. The use of high | | | | investment advice. |
| front-end loads has declined, and funds are | | | | |