A mutual fund is typically fashioned by an investment firm. The whole thing is publicized and the share holders are then encouraged to put their money in this mutual fund.

No Load Mutual Funds - Where do They Have an Edge?

As the name implies, no load mutual funds do not charge any sales loads on the investors. No load mutual funds are usually sold to the investors at net assets values and sales commission is charged. This article deals with:
  • What is the major feature of no load mutual funds?
  • Do no load mutual funds enjoy an edge over load mutual funds?
  • Want to buy the best no load mutual funds? find out how
It is important to know what do they mean by load in relation to mutual funds in order to understand what are no load mutual funds. Loads are fees or expenses recovered by mutual funds against compensation paid to brokers, their distribution and marketing costs. These expenses are generally called as sales loads. These are also referred as front end loads and along the same line of thought there are back end loads that are charged on you even while you exit from the share holding of the fund (sales fees).

What Are No Load Mutual Funds?

As the name implies, no load mutual funds do not charge any sales loads on the investors. No load mutual funds are usually sold to the investors at net assets values and sales commission is charged. But at this point in time it is important to know that some fees are still chargeable to the purchasers of the funds and still be called as no load funds as per guidelines of NASD. NASD allows mutual funds to charge some fees that are not considered as sales loads. Examples of such fees are exchange fees, purchase fees, redemption fees and account fees. The combined 12b-1 fees of the fund or share holder service fees do not exceed 0.25% of the average annual net asset of the fund.

Are No Load Mutual Funds Really Beneficial?

Assume two similar funds, load fund as well as no load fund as having an equal performance expectation. But at the onset itself the load fund is disadvantaged. A part of your investment goes to serve various fees and the balance of the amount will be actually invested in the stated mandate of the mutual fund. For example if you invested say $ 10,000 in a loaded fund that has a load of 5% the actual fees translates to $500 and the actual amount that goes for investment is $9,500 only. It is here that the no load mutual funds have an edge over loaded funds. More often than not it is the 12b-1 fees that are charged on a no load fund.

Continue to: How To Buy the Best No Load Mutual Funds

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