What’s the Difference Between Loaded and No Load Funds?
If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
Investing is a wonderful way to grow your money, but the terminology with it can scare some people. Just by taking 5 minutes, you can learn something. Today I’m going to look into loaded and no load mutual funds.
What is a loaded fund?
It’s basically a mutual fund with an extra sales cost. If you have a front load mutual fund, you pay to buy into the fund. If you have a back load, you pay when you sell your fund. A no load fund may have administrative costs, but it is not supposed to have a sales cost.
What does the load do?
It’s a commission that has no real benefit for you. The Fool.com observed:
….that there is no real difference historically between the performance of load funds and no-load funds in terms of year-to-year performance. In fact, according to the latest survey by the mutual fund data analyzer Morningstar, even excluding the drag on returns if the load were included in the calculation, no-load funds actually have a superior record to load funds over the last 3-year and 5-year periods.
This fact is also confirmed on the U.S. Securities and Exchange Commission’s site.
How can a loaded fund hinder me?
The money comes from you, so you’re the one losing out. If you have a 5.75% front load instead of investing $300 a month, you’re investing $284.25. That might not sound like a lot, but it adds up over time. There is also no proven advantage into getting a loaded fund versus a no load fund with the same performance level.
How can I find a no load fund?
I would start off looking at Yahoo Finance Fund Screener to see what options are available.
Investing doesn’t have to be as complicated as people make it out to be. You just have to take some time to understand the terms that brokers and investors use. The more educated you are, the less likely you’ll get ripped off.
Some more information on mutual funds:
- Dustin Woodard on Say ‘No’ to Loaded Mutual Funds & How to Spot a Loaded Fund
- Motley Fool on Loads
- SEC on Investing in Mutual Funds
Mrs. Micah
Very nice simple overview. I’d say Loads = SUCK…but that’s not as helpful.
January 2nd, 2008 at 7:51 pmGreen Panda
Haha, yeah, it’s amazing how many people are pushed into loaded funds.
January 2nd, 2008 at 8:16 pmRandall
Pushed is the right word. I’ve seen some funds that I seriously considered the load worth it, because of the historic returns, but it’s still a near thing.
Ing Russia for instance has 5%, but their rate of return historically has been nearly 40%/year.
Still,.. I’ll probably stick with no/low load.
One thing I did find out, for MANY of the loaded funds, there IS a no-load equiv. in most of the larger fund companies (Fidelity, Vangard, etc). Sometimes you just have to look for it.
January 3rd, 2008 at 3:29 pmGreen Panda
I’m still learning so thanks for sharing that information!
January 3rd, 2008 at 7:24 pm