A lot of people are looking for ways to invest their money. They try to search online and look for more information on the topic. More often than not, they would encounter the term Mutual Funds and its counterpart, No-Loads Mutual Funds. Most people would choose the latter over the former for simple reasons: with no loads mutual funds, investors can actually limit the fees they pay for their investments by cutting out the middlemen—the brokers and investment advisors. But delving more into the topic, we would realize that the difference between the two investment system is more than the fees investors pay.
To better understand what no-loads mutual funds are, we must first discuss the load mutual funds. These are actually the ones you buy from advisors and brokers. The main reason why it has a slightly higher price is because there is a sale charge or commission attached to the transaction. This acts as payment for the middlemen for using his expertise and taking time to help a would-be investor in choosing an appropriate mutual fund. These charges can be in the form of front-end, back-end, or levels sales charge. Additional charges can also be added like the 12b-1 fee (or an annual marketing distribution fee), which is considered as operational expense.
Some investors prefer to buy no-load mutual funds because they can get it at net asset value or NAV. The price of this kind of mutual fund is relatively lower because it has no front-end, back-end or level sales charges. No-load mutual funds may also have additional fees similar to the load mutual funds but at a lower rate. Those that do not charge additional fees are often referred to as true no-load mutual funds. These funds can be bought directly from a mutual fund company or any other financial services firm.
So why do financial experts think that despite additional sale charges, it is still best to choose a load mutual fund over the other? Most people are not that familiar with investment options and would seek an expert’s help. Financial investors, on the other hand, will persuade investors to take on investment programs that are suited for them. Another factor is financial research. Most people don’t have the time study all the investment options available. Lastly, financial advisors prevent their clients from making harsh decision during harsh market conditions. Without anyone advising them on what course to take, investors might sell their no-load mutual funds at the wrong time.
In the end, it is still the investor’s decision on which mutual fund to take. In recent years, people are choosing no-load funds over the load mutual fund because they don’t want to pay for extra charges. While this may have an advantage on a short-term basis, one can never tell if the investor can actually manage his or her investment in the long run. This is where load mutual fund has an edge. The brokers and financial advisors will be there to help you every step of the way as long as the mutual fund is still active. They can tell you what to do in certain crisis.