How to Compare Load to No-Load Mutual Funds
A mutual fund can give you a couple of big benefits. You get a professional financial management team handling your investment dollars, and you gain ownership of an instantly diversified portfolio. Some mutual funds impose a sales charge, or load, when you buy or sell shares of the fund, while others, called no-load funds, do not. Whether a fund charges a load or not is just one thing to consider when comparing the best mutual fund for your investment needs. There are a number of other factors to look at, such as fees, taxes and ultimately results.
Determine the mutual funds that best match your investment objectives, regardless of whether the fund has a load. Mutual funds are different from common stock and bond investments. Although you might be able to buy or sell your share through your broker, mutual fund shares aren't traded on the open market -- they're sold only by prospectus from the mutual fund company. There are two types of prospectuses: summary and statutory. Contact the investor relations department of the mutual funds you're interested in and request a prospectus. You can request either type, but the summary prospectus provides most of the preliminary information you need in plain English and in a prescribed format, making it easier to find and compare the information you need to make an informed investment decision.Step 2
Compare the key information for each mutual fund on a side-by-side basis. The first key factor listed in the fund's summary prospectus is the investment objective. Both the load and no-load funds you are considering should actually meet your objectives. Once you've verified that, move on to the next category: fees and expenses. This is where you can really compare apples-to-apples. The fees and expenses section details how much you actually pay to own shares of the mutual fund. If the fund charges a front-end load, it will be detailed here. A front-end load is a sales charge or commission that you pay to buy shares. It reduces the amount of your investment that actually goes toward purchasing shares of the fund. A load is not the only fee that you pay. Some funds have a back-end load, or deferred sales charge when you sell your shares. Other fees might include management fees, redemption fees, account fees, exchange fees, purchase fees and fees for other expenses. Some so-called no-load funds might be more expensive to own than some loaded funds.Step 3
Compare results. At the end of the day, the fund that provides the investment results that most closely match your investment objective is the one you want to put your money in, regardless of whether it is a load or no-load fund. Factors to compare side-by-side should include principal risks, taxes and performance. When comparing results, do just look at the last year. Mutual fund results can fluctuate widely from year to year. If you compare long-term results of five or 10-year periods, you'll get a better idea of how each mutual fund performs in a variety of market conditions.
- Securities and Exchange Commission: Mutual Funds
- Securities and Exchange Commission: Invest Wisely: An Introduction to Mutual Funds
- Securities and Exchange Commission: Calculating Mutual Fund Fees and Expenses
- Kiplinger: How to Read a Mutual Fund Prospectus Read
- Securities and Exchange Commission: Mutual Fund Prospectus
- Mutual funds aren't insured by the Federal Deposit Insurance Corporation or any other federal agency. Past performance does not guarantee similar results in the future.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.