No load mutual funds are a type of mutual funds whose shares
are sold without any commission or sales charge.
The reason for this is that
the shares are directly distributed by the investment company, in place of
going through a secondary party. This is the contrary of a load fund, in which
a charge commission collected upon the initial purchase at the time of sale.
Mutual funds offer something different for investors who do
not want to practice traditional trading on the stock market. An investor in a
mutual fund has his money put together with the money of all the other fund
investors. The fund is basically an investment company.
A portfolio manager with this pooled resources, decides what
securities or assets the fund will invest in. No load mutual funds often offer
a person a long-term investment plan where ups and downs can be weathered a bit
easier than when separately investing in the market.
Load Mutual Funds vs. No Load Mutual Funds
Let's first review the difference between load and no load mutual
funds. As mentioned earlier load mutual funds charge a commission, where as no
commission is charged for no load mutual funds.
The structure of load funds can be front-end with the
commission ranging from 3 to 6.25% of the investment, or back-end, which is also
known as redemption, with the commission generally at 3% of asset value when
sold.
Moreover, practically all load mutual funds charge annual
distribution fees, which is also called as 12b-1 fees. These annual
distribution fees are utilized to pay for promotional costs.
These costs range from
0.25 to 0.75% of annual asset value. Some no load mutual funds also charge annual
distribution fees, but no load mutual funds that do not charge annual
distribution fees are known as 100 percent no load mutual funds or true no load
mutual funds.
Best No Load Mutual Funds
Some of mutual fund investors often tend to focus entirely
on mutual fund fees and expense ratios. This is not always the smart way to
select best no load mutual funds.
The rationale is that by choosing mutual funds with low
fees, investors will have more of their capital invested. Also, no load mutual
funds with low expense ratios will pass on more of the returns they earn to
their shareholders.
The portfolio manager of an index mutual fund endeavors to
invest the fund's assets to track the index as closely and cost-effectively as
possible. Larger index funds have an advantage in that they can spread their
operating costs over a larger asset base.
Even though these no load mutual funds do no have no loads,
this doesn't mean that there are no fees included. You will have to pay other
non sales connected fees, and they will be deducted from the funds assets,
which include your investment capital.
Costs such as redemption fees, account fees, purchase fees, and
exchange fees can all be charged to you to defray the administrative costs of
the funds and erode your investment gains.
Luckily, the Securities and Exchange
Commission, or SEC, limit the amount charged in these fees, and it usually does
not exceed 2% of the principal.
Other Resources
AlphaProfit Fidelity Newsletter - Fidelity funds based investment newsletter to help investors increase returns from no load mutual funds.
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