Why No Load Mutual Funds Are Better

2007-03-08 10:33:40

( Financial )



What Are Loaded and No Load Mutual Funds?

Loaded mutual funds, or simply load funds, are mutual funds that charge a commission whenever you buy or sell their shares. No load mutual funds, on the other hand, are mutual funds that do not charge a commission or a sales charge when you transact with them. The reason for this is that no load fund shares are offered directly to the public, while load funds have to pass through a secondary party.

Why Buy a No Load Fund?

The primary reason you should buy no load funds instead of load funds is because the former is much cheaper. As an investor, you should keep a close eye on the fees that you are paying. Every percentage point counts, especially in the long term.

For instance, if you allocate a certain amount of money worth to buy shares of a no load mutual fund, you will own your entire money's worth of that fund. If, however, you spend the same amount of money to buy into a load fund with a five percent purchase charge, only ninety-five percent will go into buying shares of the fund. That is five percent off your returns even if you have not earned a single cent. All other things being equal, the disparity between the two will only increase over time. Compounded interest will make sure that the no load mutual fund will gain superior returns.

Most load funds will have you believe that they provide you with a service that is worth more than what they charge. This is true for only a minority of loaded mutual funds. Most research has shown that, on the whole, load funds do not outperform no load mutual funds. If you are looking to invest in mutual funds, develop a bias towards the ones that carry no load. They offer you the best chances for success.

Become a no load fund investor today!


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