What Are No Load Mutual Funds

In the course of your search for mutual fund options, you may have run into the terms load and no-load mutual funds. Generally speaking, no-load mutual funds offer the best deal for the investor, since they do not entail any additional charges for investing in them. To clearly illustrate the differences between both types of mutual funds, it would help to define what a load mutual fund is.

The phrase “load mutual funds” typically refers to mutual funds that come with a sales load. A sales load is simply a mutual fund commission that is paid to the broker. What many stock brokers and insurance salesmen will not tell you is that sales loads do not actually have any benefit for the investor. Load fees usually run from 4% to 8%, and they vary in the way that they are paid.

Load fees come in three basic types: front-end load, back-end load, and constant load. In front-end load–which are also known as class A shares–the sales fee is paid up front. In back-end load–which is also called deferred load or class B shares–the sales fee is paid at the end of the transaction. In the case of constant load fund or class C shares, the sales fee is paid every year, and sometimes you may even be expected to pay a full load in the event that you sell your shares.

Many of the more vocal critics of load mutual funds are quick to point out that investing in them assures you of starting off in a disadvantageous position right off the bat. If you liken investing in loaded mutual funds and no-load mutual funds to running a racetrack, no-load mutual funds position you at the regular starting line. Loaded mutual funds on the other hand position you several steps behind the starting line. In any race you will of course want to have every advantage possible, and loaded mutual funds simply do not give you that.

Well then what does? Why, no-load funds of course! The commission that loaded mutual funds requires for the purchase of your fund automatically nets you a loss right at the start. With an investment of $10,000 put into a loaded fund, a 5% front-end load means that you are in effect only investing $9,500. This $500 gets you absolutely nothing back, and you may as well consider it lost money.

No-load mutual funds on the other hand help you avoid having to pay unnecessary fees. There are certainly enough no load mutual funds available to investors–at last count numbering in the thousands–so there are really no good reasons to opt for loaded mutual funds. No-load mutual funds can even be bought directly from fund families or through a broker.

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