The Benefits of No-Load Mutual Funds

No-load mutual funds do not impose a sales charge on the front end. Many "load" mutual funds are purchased through an adviser or broker. This individual receives a fee upon purchase and may get even more fees during the life of the investment. A no-load fund does not use any of these fees, but there is still some debate over which is better.

Entire Principal is Invested

When you want to invest $10,000 in a mutual fund, you have to consider fees on that $10,000. For example, if your financial adviser charges a 5 percent service fee, you will actually be investing only $9,500 instead of the full $10,000. You may even see fees when transactions are made within the fund, and these transaction fees can even be an incentive for a fund manager to make unnecessary changes to the fund. A no-load fund does not have up-front fees nor ongoing fees. Your entire $10,000 sum would be directly invested and permitted to grow without charges, even when transactions are made. The $500 you save can represent thousands of dollars in profits over a long period of time.

Complete Investor Control

You do not have to listen to an adviser when you are purchasing no-load funds. In fact, there is no adviser to listen to at all. You will be the one doing the research, making selections and ultimately spending your own money. For many investors, this is very attractive. They do not like the idea of an adviser making these decisions for them. In fact, they may feel an adviser is essentially useless, which means they will not want to spend money on the adviser's services. They would rather simply do it all themselves and capitalize on the returns they make or go down with the ship.

Outperform Load Funds

Every year, analysts study whether load funds or no-load funds perform better. Many would think load funds would be superior because they are selected with the advice of a financial adviser. However, there is no evidence to support this. In fact, some studies even point to the opposite, claiming no-load funds are the better investment and generally outperform their more expensive counterparts. While the studies can go back and forth, one fact remains: there is no consistent advantage offered by paying a financial adviser to select mutual funds for you.

Why Buy a Load Fund?

With the added expense not generating extra returns, why would anyone buy a load fund? There are a number of reasons. First, investigating appropriate funds takes time, and some investors would rather just pay an adviser to do this for them. Other investors do not trust their own analysis and want an adviser's advice instead of maintaining control themselves. If you have an existing relationship with a trusted broker, you may be willing to spend the extra money because you have confidence in that adviser. Finally, there is evidence supporting the fact that advisers can prevent panics in market dips. If you are in a load fund, you may be better equipped to handle sharp drops without panic.

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