The Difference between Load and No-Load Mutual Funds

Both load mutual funds and no-load mutual funds are similar investments that provide you with the ability to pool your money together with other investors and invest in the market. A load is an amount of money that is charged by the mutual fund when you purchase shares of the fund. Load funds charge sales commissions, while other funds do not. Here are a few things to consider about no-load mutual fund and load mutual funds.

Load Mutual Funds

The term sales load simply means that you will pay a certain amount of money for the shares that you buy. For example, when you purchase shares of a mutual fund, you might have to pay as much as eight percent in commission. This money goes to compensate your financial broker for introducing you to the mutual fund.

No Load Mutual Funds

A no-load mutual fund is a type of mutual fund that you can buy without paying any type of sales commission. All of the money that you invest will go towards purchasing shares of the mutual fund. Many people prefer investing in no-load mutual funds because it eliminates a big part of the cost of investing in these funds.

Considerations

When it comes to choosing between these two types of mutual funds, most people using no-load mutual funds. It does not make sense to pay extra money for something when you can get it for free. Some people are under the misconception that you have to go with a load fund in order to get the performance that you want. However, many studies have proven that there is not a difference in the performance between a load mutual fund and a no-load mutual fund. Therefore, there is really no reason for most people to justify purchasing a load mutual fund.

For example, if you put money into a mutual fund with a sales load of eight percent, this means that you will have to make eight percent in return just to get back to the same point that you would have been at if you had invested with a no-load mutual fund. This is a significant gap for the fund to have to make up. In most cases, load mutual funds are not up to the challenge and you would be better off with a no-load fund.

Redemption Fees

If you plan on selling your mutual fund shares relatively quickly, you should be aware of redemption fees. These fees are charged by no-load mutual funds when an individual sells their shares before certain point. For example, when you sell your shares within five years of purchasing them, you would have to pay a redemption fee to the mutual fund company. These fees are charged to help cut down on transaction costs for the fund and to provide an incentive for investors to stick with the fund over the long-term. If you are a short-term investor, you will have to take this into consideration.

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