No-load fund

A mutual fund that does not impose a sales commission. Related: Load fund, no-load mutual fund.

No-Load Mutual Fund

A mutual fund that does not charge shareholders a sales charge or commission. Some no-load funds charge a distribution fee, which is a small percentage of the amount one invests used to cover the fund's costs. Other no-load funds, however, do not have distribution fees. Some investors prefer no-load funds because the total amount of their investment is used to purchase shares with little or no deduction. Studies have shown that no-load funds perform neither better nor worse than load funds. See also: 12B-1 fee.

no-load fund

An open-end investment company, shares of which are sold without a sales charge. No-load funds sell directly to customers at net asset value with no intermediate salesperson charging a fee. No-load funds can be expected to perform on a par with other funds that do charge a sales fee. See also low-load fund.

Case Study No-load mutual funds that for many years could only be purchased directly from fund sponsors are increasingly being offered through retail financial establishments such as discount brokerage companies. Even some full-service brokerage firms that once only offered funds that imposed a sales charge are now getting in on the act and are offering a selection of no-load funds to customers. No-load funds purchased from a brokerage firm remain no-load. That is, investors avoid the direct sales fee they would be assessed when buying a load fund. If brokerage firms sell no-load mutual funds that don't charge a sales fee, why do they offer these products to their customers? After all, brokerage firms have never been known to intentionally operate as nonprofit organizations. The answer is that fund sponsors pay brokerage firms a distribution fee to sell their funds. The fee typically ranges between 0.25% and 0.35% of the assets that are involved. The sponsors might justify the extra expense on the basis that a large volume of shares can be sold without the cost of marketing the product to individual investors. On the other hand, these no-load funds often tack on an annual 12b-1 distribution fee to help cover the cost of paying the brokerage firms. Thus, an investor who buys shares of these funds without paying a sales fee may end up paying a series of annual fees instead. The distribution fee will be charged to all the fund's investors, even those who bypass the brokerage firm and buy shares directly. For long-term investors, the extra annual expense could easily exceed the amount of the sales charge that would have been levied. The bottom line is, you may be better off buying no-load funds that are not offered by brokerage firms because you are likely to incur lower distribution charges. It is important to check for annual fees as well as sales or redemption charges when deciding on which mutual fund to buy.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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References in periodicals archive

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