What is a No Load Fund?

by Investing School on February 18, 2011

The term “No Load Fund” makes reference to a type of mutual fund that sells shares without implementing any commission or charges for the sale. Funds are able to do this because the shares are distributed directly from the investment company, instead of being distributed through a secondary party, in a classic “cutting out the middle man” maneuver. No load funds are the opposite of load funds, which require a commission for a purchase, either at the time of sale or as a “level-load” while the investor remains invested in the fund.

With no transaction cost, all of the money invested in the fund works for the investor. This means that if an investor purchases $15,000 worth of no load mutual fund, the entire $15,000 is invested into the fund. Comparatively, a load fund that requires a front-end load, something like a sales commission, of 5%, $750 of that $15,000 that was invested in the fund goes to the broker. Back-ended loads mean that the broker takes out the $750, or whatever 5% calculates to in each case, after the shares of the fund are sold.

While no load funds are certainly cheaper, there are reasons that people will opt for a load fund. Some investors are very willing to pay extra for a sales broker, financial planner, and/or investment advisor, because they value his or her expert opinion for the selection of the “right” fund. However, research has indicated that load funds are not more successful, and do not perform better than no load funds.

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