-
Overview
"No load mutual funds" are investments that contain a mixture of different financial products. These are usually stocks, bonds and cash investments. What makes a mutual fund "no load" is that it charges no fees to buy or sell shares. There are other fees associated with no load mutual funds, but the expenses tend to be significantly lower than with mutual funds that have "loads."
Investing
When investors buy shares in a no load mutual fund, they buy a number of shares at the share price on that day. The investment amount divided by the share price equal the number of shares they are buying. There is no additional commission or transaction charge for the purchase of shares in a no load mutual fund. Investors in a mutual fund with a load must pay a fee up front for the privilege of investing.
Management Fees
Just because a mutual fund does not have a load does not mean that it is free. No load mutual funds charge management fees that are quietly deducted from your account over time. These pay to maintain the account, for administrative expenses and to compensate fund managers making investment decisions for the mutual fund. These management fees can vary significantly from mutual fund to mutual fund. It is always wise to check the management fees listed in the mutual fund prospectus before investing. Lower management fees can be found with no load index funds. They mimic sectors of the financial market and do not have expensive fund managers making investment decisions.
12b-1 Fees
Another hidden expense of no load mutual funds are 12b-1 fees. They were originally designed to pay for the marketing and distribution of mutual funds. Over time the started being channeled elsewhere. Currently only about 5% of 12b-1 fees are spent on marketing. About 65% of them are paid to brokers and middlemen. There is not much an investor can do about 12b-1 fees, but it is important to know what they will do to bottom line profits. They are often listed in the prospectus as part of a no load mutual fund's expense ratio as an operational expense.
Redemptions
When an investor cashes out all or some of a no load mutual fund, they indicate the number of shares that they wish to sell. The holder of the no load mutual fund then sells those shares at the share price on that day. The share price times the number of shares equals the proceeds of the sale that go directly to the investor. No fees or commissions are taken out of the sale of shares from a no load mutual fund. Mutual funds with loads charge a fee for taking your money out.
Who Sells Them?
There are several prominent no load mutual fund companies who do billions of dollars worth of business every year. The leaders in the industry are Fidelity, T. Rowe Price and Vanguard. (See Resources) All of them have sterling reputations and have been in business for many decades. These no load mutual fund companies offer a wide range of financial products that cater to investors with all types of risk tolerances and time horizons.
