Are No Load Mutual Funds Better Than Load Mutual Funds?
The sale of mutual funds without a sales charge or commission is known as no load mutual funds. This is an attractive idea for a number of people and the sales are conducted by the investment company without any involvement from a third party. It is exactly the opposite of the load fund, that includes a charge on the day of sale or once it is completed. The money invested in a no-load fund is very useful since it is absolutely free to enter such a fund. For instance, purchasing a no-load fund valued at $20,000 the total amount invested in it is yours and it works for you as well. But in a load fund, funding the same $20,000 has say an average 5% sales charge so the amount invested in the fund is only $19000, which is a basic loss. A return for both the funds would also vary, with the load fund having lower returns compared to the no-load fund. People still invest in load funds thinking that the commission paid will be obtained since the returns would be higher compared to the no-load mutual funds. This belief is not true all the time and studies have shown that load funds are not necessarily more profitable than no-load mutual funds. The per capital returns is higher as well as the loss if and when it occurs.
Investing in no-load funds helps in avoiding the payment of fees that are not necessary, the loop is only the 12b-1 fee, which can be and should be avoided. There are plenty of funds that investors can invest in. They can be purchased at the fund family or brokers. The load funds make a difference on the investor and the fund manger has to work with a reduced amount as well.
No-load fund investments can be done through the investment companies by mail, telephone, and even recently over the Internet. This eliminates the need of the broker or middleman. However the no-load funds have a meager management fee when compared to the load charges. The management fees are approximately 1.05% for a stock investment and 0.70% for a full bond fund. The Americans who purchase their own funds are prepared with the research and stubborn about not paying commissions. The Investment Company institute has studied that the money flowing in the US through mutual funds are quite staggering, with 16% sold directly to investors, i.e. $250 billion from the $1.56 trillion of investments in mutual funds.
The Morning star a few years ago listed some of the inexpensive no-load mutual funds families namely the Vanguard Group, Schwab Funds, Dodge & Cox Funds, Harbor Capital Advisors Funds and Fidelity Investments. Each specialize in a certain type of mutual fund like Dodge & Cox, Harbor Capital emphasize on growth, Fidelity is more of an all rounder because it is huge, Vanguard and Schwab are into index funds that are low cost and other mutual funds have their specific thing. It is on you to decide what you truly want.
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