Load vs No-Load Mutual Funds: The Difference in a Nutshell

by admin January 13, 2021

In order to gain access to professional investment advice and enjoy the potential prospect of a decent return on your cash, there is often likely to be a management fee involved.

Mutual funds are a popular investment vehicle for many people who are saving for their future and want to try and improve their wealth over a period of time and these funds, which are basically securities pooled into one basket, fall into two distinct categories.

In very basic terms, load funds are mutual funds that are structured in a way where they will charge you a sale fee or commission charges as a way of compensation to the management company running the fund. In contrast, No-load mutual funds do not attract the same fee structure provided you agree to keep your money invested for a reasonable length of time, typically five years or longer.

Let’s take a look at each option and the key differences between load and no-load mutual funds.

Various charging structures

The key point to remember is that a load mutual fund will be taking fees from you in any number of ways and you need to clarify the charging structure when you decide to invest.

For instance, if you decide to invest a lump sum the fund provider might charge you a flat fee that is a percentage of the amount you want to put into the fund.

The idea behind the charge is usually to compensate someone such as a broker who has introduced you to the fund and wants a fee for their investment guidance.

Other fee options could be an ongoing percentage of the fund charged annually, or an exit fee when you sell your mutual fund shares.

If the fund grows significantly and delivers a positive ROI, this sort of fee structure might be considered acceptable and still leaves you with a decent profit if the fund performs well.

There is no doubt that loads can have an impact on the value of your holding and you need to be comfortable with this scenario.

Another way to charge you

Although a no-load mutual fund can be accessed without any sales charge being deducted you should be aware that it would be unusual to find a fund where no charges are levied.

Firstly, a fund can be classified as a no-load if it charges less than the regulatory fees approved by the Financial Industry Regulatory Authority (FINRA). Also, you might be charged a fee if you decide to withdraw your money before the agreed minimum term has expired.

There are clear pros and cons attached to either option and it can often come down to personal preference as to what you are comfortable with in terms of charges when it comes to deciding whether you prefer to invest in a load or no-load mutual fund.

The main thing to do when considering either investment option is to go in with your eyes wide open and analyze the charging structures so that you know what you are signing up for with regard to fees.