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Overview
You have decided to invest in mutual funds, but you need to find out the difference between load and no-load mutual funds. Essentially, you don't pay sales commission when you purchase a no-load fund, but you do pay when you buy a load mutual fund. You will either pay the commission of between 3 to 6.25 percent at the time of your purchase, or you will pay the commission when the shares are sold. In addition, both load and no-load mutual funds charge a "12b-1" fee of from 0.25 to 0.75 percent of the net asset value of the fund yearly for administration. In addition, both load and no-load mutual funds charge for investment management.
Considerations
Most investors choose no-load mutual funds for investment because of costs. However, there are reasons why you may opt for a load mutual fund. You may consider the advice of your financial advisor is worth the extra money you will pay for a load mutual fund. Furthermore, it is possible that you simply do not have the time to do the research. Many investors have long-term relationships with brokers and would not make investments without their help.
Benefits
By investing in a no-load mutual fund, you will have more money working for you from the start. By having the extra money invested, it can make a big difference, especially if you hold the investment for a relatively short period of time. In addition, according to a recent issue of Financial Planning Journal, the average no-load mutual fund has performed as well or better than a mutual fund with a load charge.
Warning
While pure no-load mutual funds charge no 12b-1 fees, many others charge the maximum allowed by law. If you have narrowed down your decision to a few mutual funds, read the prospectus for each to determine the level of 12b-1 fees that they charge.
Time Frame
You will be better off investing in no-load mutual funds if you are unsure how long you will own it. You will have more of your money invested in no-load funds from the start and you will not be subject to back-end load fees that many load mutual funds charge when shares are sold.
Misconceptions
While logic will be on your side if you invest your money in a no-load mutual fund, you still run the risk of making a bad decision. During the good years, no-load mutual funds advertise their excellent performance, and they attract many new investors who have unrealistic expectations. But when the market falls, those investors become disenchanted and return to their brokers, whom they will pay for their advice.
