Many investors have had trouble deciding between a load fund and a no-load fund over the years. Both options can provide you with a solid investment. However, in order to make an accurate assessment of which method you should choose, there are few things that you should understand first.
Load vs. No-Load Funds
The difference between load and no-load funds is the amount of money that you pay upfront. When you purchase a load fund, there will be a fee to pay for a commission to a salesperson. When you work with an investment broker, they will be paid a commission for directing you to the proper mutual funds. Most of the time, this fee will be between five and 6%. Therefore, with a load fee, you are basically paying someone for advice. They are advising you as to which mutual fund you should choose.
Many investment gurus that believe in the load structure, have a few regular arguments that they use in order to justify paying a load fee. Here are a few things that are commonly debated between supporters of these two types of funds.
Mutual fund load fees supporters typically say that the performance of the fund will be better with these types of funds. However, when you examine the statistics, this is simply not true. No-load mutual funds perform just as well as load mutual funds in nearly every case. Some of them will be better than others, but when you average it out, they are very similar in performance. Therefore, paying a commission for better performance does not make any sense from an investment standpoint.
Another reason that many experts say that you should go with a mutual fund that has a load is the guidance that you will receive. The thought process is that most people have no idea which mutual funds to invest in and they need guidance from an investment professional. If you do not have any experience in the market, this may be true. However, with all of the information that is available in the market today, it is very possible for the average investor to do their own research on mutual funds. Many investment professionals simply sell shares of mutual funds so that they can make a commission. They have no idea whether or not the mutual fund will perform well over the long-term. Therefore, the guidance that you receive is often biased.
Expense ratios of mutual funds is another hotly debated topic. Most proponents of load mutual fees will tell you that the expense ratios are lower. However, a little bit of research will tell you that this is not true either. When you compare the expense ratios between the two types of funds, you will notice that they are very similar. In fact, many no-load mutual funds have lower expense ratios than load mutual funds.
Choosing a Fund
As a general rule, investing in a no-load mutual fund will usually be the best for you. This allows you to earn interest on every dollar that you invest instead of paying a commission first. Ultimately, it should come down to the performance of the mutual fund over the long-term.