Definition of a No-Load Mutual Fund

By Kent Ninomiya

  • Overview

    The definition of a no-load mutual fund is a financial security that contains a mixture of financial products and charges no fees to buy or sell shares. No-load mutual funds can contain varying amounts of stocks, bonds and interest-bearing investments. Investors trade shares in the no-load mutual fund without transaction costs. Financial companies that offer no-load mutual funds get their compensation in other ways.
  • Types

    The term "no-load mutual fund" refers to the way fees are charged to investors. It does not indicate the types of investments contained in the mutual fund. There are aggressive no-load mutual funds containing mostly volatile growth stocks. There are also conservative no-load mutual funds that contain primarily bonds and money market investments. The only thing these no-load mutual funds have in common is that buying and selling their shares is free. The most widely known no-load mutual fund companies are Fidelity, T. Rowe Price and Vanguard. They offer hundreds of different types of no-load mutual funds.
  • Buying Shares

    Individuals can buy shares in a no-load mutual fund. This is a proportional fraction of the overall holdings of the no-load mutual fund. Each no-load mutual fund has a price that is charged to buy a share. This price changes daily, depending on the fluctuations of the investments owned by the no-load mutual fund. Individuals buying no-load mutual fund shares are charged the share price on the date of their purchase for each share they buy. Because the mutual fund is no-load, this transaction is free of charge.

  • Selling Shares

    If the share price of the no-load mutual fund later rises, the investor can sell her shares at a profit. If the share price falls, she will suffer a loss when selling. The sale of shares in a no-load mutual fund are also not subject to transaction fees. This results in more profits when no-load mutual fund shares are sold at a profit, and less severe losses when no-load mutual fund shares are sold for less than their purchase price.
  • How They Are Paid

    Managers of no-load mutual funds are paid in other ways. All no-load mutual funds deduct management fees. This is a percentage that is removed periodically from your balance, regardless of whether your no-load mutual fund is growing or shrinking. These management fees are revealed in the no-load mutual fund prospectus but are usually not listed on your monthly statements. So it's difficult to see what the no-load mutual fund is actually charging you. It's important to consider the management fees before buying shares in any no-load mutual fund.
  • Other Fees

    No-load mutual funds also charge 12b-1 fees. This is supposed to be to pay for advertising the no-load mutual fund and attracting investors. However, it's most often used to pay off financial advisers who sell no-load mutual fund shares. Even if you go straight to the company to buy your shares, you are still charged 12b-1 fees. They are sometimes identified by this name in a no-load mutual fund prospectus. Other times they are lumped in as an operational expense in the expense ratio.
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