Load or no-load mutual funds? There’s a big difference!
By: Robert F. Abbott, freelance writer and author
Among objective observers of mutual funds, no-load funds get an overwhelming thumbs-up.
‘No-load’ is simply the industry’s way of referring to funds that carry no sales fees. On the other hand, a ‘load fund’ requires that you pay a sales commission when you buy, a ‘front-load fund’, or when you sell, a ‘back-load fund’.
Often, mutual fund sales people will tell you the sales fee is needed to compensate them for the time they spend setting up your account, or even ‘educating’ you about funds. You don’t get something for nothing, as the saying goes.
But, in the case of mutual funds, paying a load often means paying twice. You routinely pay a management expense ratio to the company that set up the fund, and that usually covers all the administrative and trading costs.
From an investors’ perspective, a sales load takes a serious bite out of returns, reducing the amount you take home. That’s a real problem with a ‘front-load’ fund, which reduces your starting capital. In turn, it’s that much less capital available to compound over time, and compounding is one of the most important vehicles by which your investment grows.
So, it’s not surprising to see articles like this one from Zacks, that shows no-load funds outperforming their loaded counterparts…
The list of best-gaining mutual funds for the quarter is dominated by no-load mutual funds….
Now, some load funds do well, and even very well. They find a place in lists like the one referenced above. However, the odds are more in your favor if you start with no-load funds. It’s simply a matter of the math giving you an important edge, and edges play a very important part in making your investments winners.