Mutual funds that do not charge a front-end or back-end sales load are known as no-load funds.
While no-load mutual funds do not require the investor to pay sales charges (i.e., commissions) when buying or selling that fund, it’s important to remember that nothing is free, especially in the world of financial services. The portfolio manager of the fund and his team of analysts still have their salaries, bonuses, retirement benefits, and so on, and fees are needed to pay for it.
There are also expenses associated with marketing the fund and distributing the shares. An investor may choose a no-load fund in an effort to avoid paying a front-end load and seeing their initial investment decrease before anything else happens, but the fees on a no-load fund have the potential to be higher than the A share fees.
The only thing a no-load fund can’t do is pay a broker or advisor commissions, in a nutshell. Any other fees they feel the need to charge year-to-year to keep the fund running can be worked into an array of fee and expense line-items.
These mainly fall under the umbrella of 12b-1 fees, but there are plenty of others to choose from. Investors should be aware that it is possible for a no-load fund to cost them more, and impair their potential rate of return, compared to a load fund.
There are plenty of cost-efficient and well-managed funds in both categories, so an investor shouldn’t rule one or the other out based on this criteria alone. Also, remember that front-loaded funds may offer breakpoints for larger investment amounts, which can reduce the fees charged significantly.
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