Do not get confused with terms such as load when dealing with mutual funds. A load is the commission paid to sales person when you buy or sell shares of a mutual fund. It does not form part of the fees to the investment advisor. The performance of a mutual fund is not based on the load. Read up the whys and how’s of no load mutual funds and their features. It is finally the quality of the mutual funds that should affect your decision to keep or sell a fund.
Load Vs No load mutual fund
Some financial analysts are of the opinion that in the long run, there is not much difference between load and no load mutual funds. In the short time frame, the load or sales commission affects the price of the mutual funds units. The more popular opinion is that by going in for a load fund, you are paying a commission and that amount does not get invested. If you were to calculate the probable earnings by having invested that commission too, you would notice that it adds to a considerable amount. But you need to weigh it against the additional services such as stock tips, financial advice and preferential treatment during IPOs etc. An investor in a no-load mutual fund might be tempted to trade in and out of it often.
Front end load on mutual funds refers to the fees paid when you buy the shares of the fund. The back end load is when you are charged while selling shares of a mutual fund. Constant load mutual fund is one where you pay sales fee each year you keep the shares. But what is essential is to check the mutual fund and its performance and not merely the load factor. Typically the load is a percentage of the amount invested; ranging from 1 - 5%.
Choosing no load mutual fund
Shares of no load mutual funds are sold directly by the investment company without commissions. So all the money that is invested is working for you. Fees for the investment advisor and funds manager are paid out of the profitability of the mutual fund. Look up various no load mutual funds and check their performance over a period of time.
Match your investment goals with a suitable mutual fund, be it in terms of risk tolerance or diversity. Look for any hidden fees. While no-load mutual funds may be free of sales charges, there are surely costs that you might need to see. You might pay out for redemption fees, exchange fees and account fees.
In most cases, no-load funds have higher average expense ratios than load funds. No load does not mean no fees. And does not always mean a better bargain. In the end, what you want is a diversified mix of funds with good performance history. Finally your investment needs must be met.