Load funds, no load funds and low load funds

by Tim Stawman.
Share
|
Homepage | Submit your article | Contact | TOS
More articles on stocks and mutual funds  

You are here: Categories » Legal and finance » Stocks and mutual funds

Mutual funds can be classified as load funds, no-load funds, or low-load funds. The load fee is the sales charge, the amount the investor pays to buy shares. It is a direct deduction from the amount of money that actually goes to work for the investor in the mutual fund.

  • A no-load fund has no sales charge, and 100 percent of the investor's money goes into shares. For example, T. Rowe Price's GNMA Fund invests in U.S. Treasury securities and GNMA securities (also called agency securities), seeking high income potential with maximum credit quality. Because it is a no-load fund, there is no sales charge and 100 percent of your money is immediately invested in the fund.

  • A load fund charges a sales fee, which is used to compensate the sales force. For example, with a 5 percent load fee, the investor gives up 5 percent of the amount invested as compensation to the sales agent or broker. As one illustration, Merrill Lynch, a large brokerage firm, offers a variety of mutual funds. Its Healthcare Fund (A shares) has a load fee, or sales charge, of 5.25 percent of assets invested. An investor in this fund would give up this amount of the funds invested as a sales charge.

  • A low-load fund charges a fee of perhaps two to three percent (there is some variation here).

Some fund families, such as Fidelity, offer both no-load funds and low-load funds. For example, Fidelity's famed Magellan Fund, traditionally one of the two largest mutual funds in the country, has a load fee, or initial sales charge, of three percent. This would be roughly midway between a true no-load fund, with no sales charge, and a typical load fund with a sales charge of 5.25 to 5.75 percent of assets.

Of course, investors purchase a particular load fund because they expect the fund to perform better than comparable no-load funds, it has the objective they are looking for, the investor particularly likes the fund manager, and so forth. This whole issue—the pursuit of performance by investors as they seek out various actively managed funds—is the key issue that dominates our discussion of mutual funds.

It is important to understand that the load fee, or sales charge, is a straight deduction from the amount of money an investor puts in the fund. For example, with a $10,000 investment, a five percent load fee results in a $500 deduction to compensate the sales force, and the investor ends up with a net $9,500 investment in the mutual fund. In contrast, had the investor purchased a no-load fund, the entire $10,000 would go to work in the fund.

Share
Leave a comment or ask a question
Total comments: 0

Stocks and mutual funds Disclaimer

  • The e-articles directory is not responsible for any and all copyright infringements by writers and authors. If you suspect the information contained by this page for any copyright infringements, please contact us to investigate the issue
What you have to know to determine the fair value of a stock and the right price - You can use several methods to determine the fair value of a stock. Throughout the following sections, I discuss three of the more popular methods of determining the right price for a (more...)
Advantages and Disadvantages of Mutual Funds - As a general rule, the first palce to start analyzing a fund is by by comparing its expense ratio to similar funds. All funds have fees and expenses, but the amounts vary. In addition to sa (more...)
How to Screen Mutual Funds Online - The Internet provides a variety of mutual fund screening tools that sort thousands of mutual funds by criteria that you select. For example, you may want one type of fund for your children& (more...)
Mutual Fund Basics - Over the years, the stock market has outperformed any other investment. Unlike a mutual fund, however, individual investors frequently can’t purchase a large number of different secur (more...)
ECNs ~ It`s Not Your Grandfather`s Market Anymore - Recent changes in SEC regulations and technology have transformed how investors interact with the stock market. I explain these changes in the following sections, and I show you how these chang (more...)
Guidelines About When Is The Right Time to Sell Your Mutual Funds - If your fund becomes one of the worst performers, consider selling. However, you need to look at more than just the fund’s rating. Consider these guidelines for determining when to se (more...)
Buying Mutual Funds Online ~ No Broker Needed - Before you invest in a mutual fund, read the fund’s prospectus so that you understand exactly what you’re investing in. Next, fill out the online account application form for th (more...)
Pros and cons of the penny stock - Usually, penny stock investments are a way to earn preety handsome returns but it's at risk. It all depends if someone knows the best way to choose his penny stock. Before putting in their money, (more...)
The pros and cons of stock trading - Stock trading is an important activity for the business people related to the trading business. The purpose of this activity is simple: to invest in the business and to raise capital. This (more...)
Stock Exchange for Beginners - A stock exchange is a place where several stocks and securities are traded using online or other mediums. Thousands of stocks change hands each day and their prices keep on varying because of varia (more...)
 
free content
    Copyright © 2006 - 2012 e-articles.info.
The texts, articles and tutorials in the directory are property of their respective owners and authors.